What's The Point Of Insurance
Updated: Apr 5
Okay, so what's the point of insurance?
Yeah, what's the point of insurance?
There is a point.
Explain, since I already asked.
The point is comfort.
Explain that one too.
As always, mindset is how you think about things.
Here's what your mindset has to be about insurance.
Insurance is transference.
Insurance is transference?
Yes, insurance is transference!
It's kind of musical.
Risk is something you take on, like it or not.
I thought Risk was Bitcoin.
Well, it is. But Risk is also getting out of bed in the morning.
But here's where taking action with respect to insurance gets good.
Risk is good?
Yeah, if you don't have it. Or at least where the marketplace functions in such a way that you don't have any more than you want to handle.
And why is that?
Because you've transferred risk from yourself to someone else.
Sit with that for a second.
If you're a homeowner, you have the risk of fire or somebody breaking in and taking your stuff or other kinds of damage, earthquake, flood.
Depending on where you are.
True, DT. And where you are is another risk that you take.
You can decide that it's a risk that you don't want to take.
Or one you would rather transfer to someone else.
And there's the transfer, right?
Yep, there's the transfer. And that's perfectly okay.
You can transfer the risk because there are other businesses set up to accept the risk.
What they want in return for taking on your risk from you is some of your money.
It's up to you to decide if that's a reasonable trade or a fair trade.
And if you don't?
Then you keep the risk. To the insurance company, you're just John Doe.
This is what insurance is.
Companies that do this are most often known as insurance companies.
Maybe it's health insurance coverage, maybe it's automobile insurance policies, or maybe it's property damage liability insurance.
You mean "THEY", right?
Well, some people say crazy things about insurance companies, usually involving the "they" pronoun.
Careful about legal liability.
Right, thanks. Nevertheless, insurance companies are involved in this business. And they will happily take on some risk, maybe it's the home risk in the case of homeowners’ policies, or renters policies.
Whatever the regulatory authorities will let them do.
Saying that is not being careful. Maybe it's automobile risk in case of automobile insurance, like uninsured motorist coverage, or medical risk in the case with medical insurance, or long-term care risk, in the case of long-term care insurance.
Oh don't mix this idea of the point up with points for bad driving and we'll be fine.
There are a number of different risks to consider, but they all have the same bottom line, they represent risks that you might not want.
And in return, they ask you to pay for them taking that off your plate.
Later they may decide they are not charging a reasonable amount for business that they need to support, so they will alter their offerings over time, in accordance with that.
It's exactly what you or I would do if you were if we were in the same position.
Okay, so how DO you determine if you even have the risk?
A risk? Any risk?
Good thinking, DT, and the answer to that is this:
Just ask yourself this question:
Does anyone other than me depend on the thing that could be insured?
Ask yourself that!
Like what kind of thing?
Like your income, for example, if you're a young person with a spouse, kids family, and they are depending on your income for their benefit, then insurance is a reasonable choice for you.
If something were to happen to you...
You probably wouldn't know it.
Maybe not, but your significant other and other family members sure will.
Their needs are not going to go down. They'll still have the same prescription drugs.
If those people aren't in your life, then you do not need insurance.
If only you are depending on what you make...if something happened to you...
Nobody would be left out in the cold.
At least, nobody alive.
Insurance is not something you either want or need in that case.
But if anybody is depending on you, insurance is a great idea.
Yeah! You'd get to blame them!
Well, not if you've listened to episode 34 about Pre-Mortems.
You sure do like to take the fun out of stuff, don't you?
That's certainly one way to look at it.
I think it's fun to win though, and that's what I do. It sure beats acting like an injured person.
You bet! When I say "win" I mean taking the pressure off, redirecting it, maybe even (see Think and Grow Rich here) TRANSMUTING it.
Oh, don't get weird on me.
I'm not. Looking into something so you can explain it to someone else is not at all weird.
Okay, given. So explain to THIS someone else how this ties into your big message.
We'll go there once we know this most basic concept has sunk in deep. Until then, it's inpatient care.
Can we go into the investing connection now?
Soon, DT. Soon.
Are we there yet?
Right after the break, DT. You know that.
How does it get into investing?
Awesome question, DT. One that nearly everyone has.
Although insurance is often viewed as one of many possible inpatient services, to draw a picture, it should really be thought of as one of many possible outpatient services.
It gets into investing because it's a critical part of your overall picture. Just like the things that you make money from.
You're not going to make money from this, you're going to give up money for this.
But you're going to gain peace of mind.
And your whole portfolio needs to involve not just money, it also has to be calm, fun and peaceful.
Yes, we should all bask among the bamboo with our money, you insurance agent.
Sigh. Whatever, DT. It's important in investing, as in other things, to take pressure off.
You can worry about earthquakes, or dying young. But why do that?
Dunno, because it's fun?
Why not gain peace of mind by transferring that concern to the insurance company?
Your peace of mind is worth some amount of money.
In fact, that's what money is for.
Really? I thought it could buy you love.
Well, maybe it can. Maybe we should look into licensed healing art care.
But to wrap this up - THAT's one of the major provisions of investing. The part where you're investing in your future.
But it's other people who need me to invest. People like you.
Please do not think of investing as something that other people need you to do.
That I need you to do.
Isn't that what I just said?
Yes, it is. But since you are what you think...let’s apply a better mental territorial plan. Think of investing as something that you do for you.
Or for the department of insurance, I mean, Or the ones you care about.
Well, I hope that includes you, but yes, them too. The ones you care about the most.
To live, even in a health care facility, you must have income.
For others to live, your stuff must be protected.
Either way, it's an investment, because replacing it would have a cost.
What if I didn't replace it?
That's your choice, but this is pretty basic stuff here and other people, as I said, are going to notice.
What if I cryogenically froze the problem?
Oh, you're just trying to distract us from the problem, actually.
I'll just say that, if anybody is depending on you, insurance is a great idea.
It just has a cost.
What about the risks to insurance carriers?
That's a real thing for a different story.
I don't want that cost. Well, maybe I don't care since I'm dead.
But the people you care about are NOT dead.
The cost outlives you.
All of that is part of investing. And that's how we tie it together.
Remember? (Sings) Insurance is transference.
Insurance is transference?
Yes, insurance is transference!
I won’t. You just close us out with the Remember thing.
Remember, ALL YOU NEED TO DO IS PRACTICE, AFTER WHICH YOU’LL GET GOOD!