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Definition of Insurance

Tags: insurance

Perhaps one of the problems contributing to the rising cost of health Insurance stems from the fact that many people have lost sight of the meaning of insurance. When you ask someone what's important to them about their insurance, you'll often hear things like 'good preventative care benefits' or 'low copays for office visits and prescriptions' or 'low deductible.' When we remind people that they'll save a lot of money on premiums by selecting a higher deductible with less coverage for the day-to-day expenses, they often respond by saying something like "what's the point of having insurance at all if you're still going to be paying for all your own doctor visits?" Or they'll say "Well, I never have $2000 worth of medical expenses in a year, so with a deductible that high, it wouldn't even be worth having insurance." The problem with this logic is that people are thinking of insurance premiums as direct payment for an equal-value service. When you buy a car, if you pay $10,000, you can expect to end up with a car valued at $10,000. Insurance is a totally different commodity. You're paying premiums for an intangible benefit, ie. the peace of mind of knowing that if you ever do have a health crisis, it won't leave you bankrupt. Insurance is an aleatory contract, which by definition means 'depending on an uncertain event or contingency as to both profit and loss.' This is why you can pay relatively low premiums compared with the potential benefit - because both you and the insurance company know that the likelihood of you needing the benefit is low.
So in order for insurance to work as it was designed, you have to be willing to buy a policy hoping that you'll never have to use it, and knowing that the premiums you pay will only give you a tangible benefit in the unlikely event that you have a serious illness or injury. The intangible benefit, being able to sleep at night because you know you have an insurance safety net in place, is the one that brings you daily peace of mind.
When people start to expect insurance carriers to cover expenses that they know they'll be incurring (ie, maternity, preventative care, etc.), insurance begins to lose its aleatory nature. It then becomes a tangible product, in that people are paying premiums and fully expecting to realize short-term monetary benefits. Insurance companies are generally for-profit entities. So you know they aren't giving consumers anything for free. If we are buying insurance and fully expecting it to cover planned events, we have to recognize that the cost of those services is included in our premiums.



This post first appeared on Colorado Health Insurance Insider, please read the originial post: here

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Definition of Insurance

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