With such a sweeping and provocative title I should probably take care to make it clear from the very start: I do understand that the insurance industry is a neccessary part our our society, and that both the peace of mind that having a policy can offer and the help that the industry gives to people at times of crisis or difficulty is extremely positive and valuable. But is this massive multi-billion dollar industry both neccessary and good, or would it be more accurate to describe it as a neccessary evil? My own feeling is that the industry is indeed a neccessary evil, and in many cases it is actually an unneccessary evil. I wanted to write this article to put across this feeling to anyone with an interest in reading it, and to try to make a distinction between these two parts. I hope that reading this article and thinking about this subject yourself will help you to make the right decisions about when to buy insurance and what types of insurance to buy.
But before looking at different types of insurance policy I guess I should say on what basis I could possibly state that this huge industry could possibly be immoral or even evil. Well, the main reason is that insurance is essentially a form of gambling. It’s just that you are placing a bet on something bad happening to you rather than on a horse or a roulette wheel. If something bad happens you win – the company pays out; if nothing bad happens you lose and they keep all of your money.
Of course there is a big question mark over whether gambling should be described as immoral and many people would say that it is not, but my own feeling is that the gambling industry takes advantage of people’s hopes and desperation to con them out of money by advertising an almost universally false dream of easy money and an easy solution to problems. Is it any different if a company takes advantage of people’s fears rather than their hopes? In a way, I think it might even be worse.
I have always tried to avoid taking out any kind of policy that isn’t neccessary for me precisely for this reason – because I see it as a form of gambling and I don’t agree with (or see the benefits of) gambling. I also know that the industry often tries to sell people policies that are really very unlikely to benefit them with slick sales pitches. I once bought a mobile broadband dongle for £20, and the women in the shop tried to sell me a £15 warranty for it. I was taken aback by this and asked her what was the point in getting a warranty for something so cheap, and was told by her that the benefit was I I lost it or it brokie I could get a new one for just £10. That’s £10 + £15 for the policy = £25. £5 more than it would cost to just go back into the store and buy a new one. That is an extreme example, but many store warranties end up costing people a quarter of the price of the item, and only cover a period during which 999 out of 1000 product will have no faults at all. You have to ask yourself whether it is really worth taking a bet at those odds and at that price.
Some types of insurance – things like health insurance – are neccesary because the companies who provide them may get better deals than you would if you buy health care at the time it is needed, or because although you may lose out financially you would be in serious trouble if the worst did happen and you had no policy to cover it. Other things, like insuring a building, might fall into this second category. And then there are others which are a legal requirement to make sure that you are able to fulfill your responsibilties in any eventuality
But for many other kinds of insurance I would personaolly say that it is well worth putting some serious thought into whether you really need to have them – would it really be an absolute unqualified disaster if you didn’t have a policy? Would you actually be able to get the money from somewhere anyway – in which case you would probably be better of without it? Getting a loan out to cover unexpected expenses from a burglary or damage to property may not be any more expensive, and if nothing happens you don’t need to pay anything. And then of course there is the fact that you could, if you have any self-control whatsoever, just put the money you would have spent on monthly payments into a savings account to cover any unexpected eventualities, and actually gain money from the interest.
In summary my advice is: think carefully before you buy.