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Originally Posted by dalmations202
Actually it doesn't work, and it never has worked exactly properly. It is like social security -- it is written to make some people some money, help a few at the expense of the many, and then eventually die from the inability to provide.
it works as long as there is more people putting into it, than are taking from it and there is serious inflation.
There is only a finite amount of money coming in and with insurance and social security for that matter -- you not just need the money to cover the cost of what you are insuring, now you are actually paying the wages of people to keep track of the money. When they can't reach the money needed to cover the wage earners -- then they fold unless someone like the government can vote to reallocate other money from the people to make sure the wage earners are getting paid.
Insurance is and always has been a scam of prying on peoples fears. Well this might happen, so I'll send this cash to someone else to hold on to -- just in case it might happen to me someday. Get enough people sending you money and it becomes big business -- which actually goes nowhere.
It is nothing but peace of mind for the mass majority of people.
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Insurance works because the sum of a bunch of random variables has a more predictable effect than just one of the random variables. Roll a fair die once, and you could get anything from a 1 to a 6. Roll the die 1,000 times, and you'll most certainly average around 3.5.
A client may not have any clue what they will need to pay in the case of an emergency, because the variance is so high. But an insurance company is willing to shoulder the burden, because it knows pretty accurately what it will likely be paying over 1,000 policies. An insurance policy allows the individual consumer to convert the risk into the same predictable loss that the insurance company experiences overall.
The insurance companies make their money by investing the money earned up front, not just wild overcharging.