This article will discuss how any type of insurance is actually a company charging money, only for them attempting to avoid deleviring a service. We are not actually accusing anyone of scamming.

In 8 Should you save for expenses that can be planned or pay afterwards we discuss how it could be better to save some money in case you need it, insurances are the absolute opposite of doing that. We do recognise that not all insurances are voluntary, many are government mandated (governments collect taxes on insurance premiums so they benefit greatly); this article will assume that all insurances are equal.

Some insurances offer additional coverage, for a fee, these can be beneficial as they apply to your specific situation. You just need to do your homework before deciding on these. There also can be possibilities for a higher deductibles, these can help in reducing your bill, again you need to do homework and be willing accept the higher risk.

Costs

Every company has its own bills to pay, insurance companies are no different. They pay for these costs by billing you, so that is money they are no longer able to payout in case of a claim. We are not talking costs that actually help them function in a specifically helpful manner, just the usual: Staff, building and all manner of overhead. Besides those, they make industry specific costs such as debunking false claims, simply investigating if a claim is not fraudulent and sometimes litigating against genuine claims.

Profit

This is main reason why it was decided to refer to this as a scam: The primary purpose of even offering these insurances is profit; they wish to payout less than they collect, even after costs. It is exactly the same as virtually every other business; shareholders get paid, customers get to pay them.

It is actually worse with the government mandated insurances; private individuals do not get to decide if they wish to risk it. If they do not, a far larger amount is owed or possibly even jail time. Those in charge actually allow companies to charge premiums over insurance that you might not even need.

Situation that do not apply

In the above paragraph costs it is mentioned that insurers sometimes go to court over a claim that should be honoured. This is partially because every insurance has clauses that state when it does or does not apply; like any company they hate paying out, so attempt to avoid doing so. This is largely when it is unclear if a situation applies to the insurance or when they expect a lot of claims if it is general knowledge that it does apply. In such cases they decide that it is cheaper to hurl a lawsuit at someone*.

The difference between a claim being valid or not, can depend on something like your phone falling on the floor in your house or when you are out and about. Even when visiting someone it can change.

Saving for the risk

If you do not get insurance, instead decide to save for the risk of something happening; you can get interest. It is also possible to invest in something highly liquid and with little variation in value (precious metals or bonds mostly).

Prior years

At least in health insurance, it is possible for care providers, to claim expenses from the insurer for several years in the past. These claims can also be spread out over multiple years; this combination means that you can pay a deductible twice for the exact same treatment. If you change deductibles for the new situation, it is probably already to late because of this.

For those doubting the veracity of this claim and other statement in this article: The author has had this multiple times, costing well over a thousand EUR. It is not unusual for (government mandated) insurances to payout absolutely nothing more than basic fees.

 

*We do differentiate between suing someone who scammed them with false claims and suing someone who has not scammed.