Tuesday, November 19, 2013

The purpose of insurance

The current debate over “if you like your plan, you can keep your plan” has revealed a shocking ignorance of the purpose of insurance.

We buy insurance for our automobiles because it is basically required by law. But there’s a bigger reason: It protects us.

Furthermore, in purchasing car insurance — or any other kind of insurance, for that matter — we hope we never have to use it.

You may go years paying $2,400 annually to insure two vehicles and never make a claim. But you are willing to do so because it is there if you need it. Others are also paying for similar policies so that in case you do have a problem, there is enough money to pay your bills.

You see, this is how insurance works. You create a pool of money large enough to handle anyone’s claims, of which there may be a wide variety. This is why it is necessary for everyone to have insurance, to create a large enough accumulation of money so that all contingencies can be handled. The higher the participation, the lower the cost for everyone.

That’s why it is so difficult to understand why people don’t comprehend this in the medical realm. No one wants to get sick. But if you do, medical expenses are prohibitively high. No one can afford cancer treatment. Pediatric care can be very expensive. Pregnancies also cost a lot of money.

So why is it that people who are 58 can’t understand why they need coverage for everything. Yes, perhaps their child-bearing years are a thing of the past but it is a very real expense for younger people — perhaps even the 58-year-old’s daughter and son in-law. Similarly, why should young people have to be insured against diseases  normally associated with old age? 

Get the point? Everyone participates in order to share a burden when it happens.

It’s just like public schools or roads or military defense. Everyone pays equally — or should pay equally — so everyone can benefit.

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