What is the purpose of insurance? Why do people have insurance?
From Dictionary.com
Let me start with Life Insurance.
One purchases life insurance to financially protect loved ones if ones life was lost and the subsequent loss of income would create a financial hardship for the survivors. For example, if a spouse (or spouse and children) couldnt afford to live if their husband or wife were to die and that income was lost for the household. Single people with no dependents typically dont have life insurance, or if they do, it is a minimal amount. Maybe to cover burial expenses. Life insurance isnt there to protect the holder of the policy, it is there to protect the family members if a catastrophic event were to happen to the holder of the policy.
Disability Insurance is next.
In many ways, short and long term disability insurance is similar to life insurance in that it is there to protect the dependents (family) from loss of income should one become disabled and no longer able to provide financially for the family. It is different in that it also protects the holder of such an insurance policy financially for their personal loss of income. Disability insurance is purchased to protect oneself and ones family from catastrophic loss of income. Disability insurance is not there to protect one if they miss a few days at work because they got flu.
Home owners insurance, renters insurance and auto insurance.
Ill lump all three of these together because they all serve the same purpose. One purchases insurance of this type to protect themselves against loss of property. Primarily their own property, but with auto insurance the added protection of not having to replace another persons property if you caused a wreck. These types of insurance also have a pre-determined deductible (out of pocket expense) that one feels they can afford. That amount is different for the house and car and different for the individual. For example, I may assume affordable risk (out of pocket expense) of $500 for my auto insurance and you may assume affordable risk (out of pocket expense) of $250. All other things being equal, my auto insurance policy will cost less than yours because I take on the extra risk/expenditure. Again, this insurance is purchased to protect one against a catastrophic loss. Home owners/renters insurance isnt for carpet cleaning and auto insurance isnt for oil changes.
Here is Health Insurance.
Most medical insurance covers a percentage of everything. Got the flu, an office visit to your doctor costs $120 but your co-pay is $20. Time for your annual physical, pay $20 for a $200 service. Accidentally break your finger and visit the ER, insurance pays 80% of that $1500 in medical care. There is nothing catastrophic about a $120 to $200 office visit, pay the bill. $1500 in ER may or may not be catastrophic depending upon ones financial situation.
My Thoughts
For some reason (unknown to me), many people have come to the opinion that health insurance should be involved in all health care expenses. They want their health insurance to help pay for a few stitches if they accidentally cut themselves. They want their health insurance to pay for their annual physical. Those are not catastrophic events. One wouldnt expect their auto insurance to pay for a flat tire or an oil change. Why is minor and routine medical service considered differently when it comes to insurance? (scroll back up for definition of insurance) The purpose of insurance is to protect one against catastrophic loss, not to provide maintenance.
When it comes to medical insurance, I want it to be more like my auto and homeowners insurance. Let me decide how much I am willing to pay in deductible, cover 100% beyond my deductible, and set the rates accordingly.
From Dictionary.com
Let me start with Life Insurance.
One purchases life insurance to financially protect loved ones if ones life was lost and the subsequent loss of income would create a financial hardship for the survivors. For example, if a spouse (or spouse and children) couldnt afford to live if their husband or wife were to die and that income was lost for the household. Single people with no dependents typically dont have life insurance, or if they do, it is a minimal amount. Maybe to cover burial expenses. Life insurance isnt there to protect the holder of the policy, it is there to protect the family members if a catastrophic event were to happen to the holder of the policy.
Disability Insurance is next.
In many ways, short and long term disability insurance is similar to life insurance in that it is there to protect the dependents (family) from loss of income should one become disabled and no longer able to provide financially for the family. It is different in that it also protects the holder of such an insurance policy financially for their personal loss of income. Disability insurance is purchased to protect oneself and ones family from catastrophic loss of income. Disability insurance is not there to protect one if they miss a few days at work because they got flu.
Home owners insurance, renters insurance and auto insurance.
Ill lump all three of these together because they all serve the same purpose. One purchases insurance of this type to protect themselves against loss of property. Primarily their own property, but with auto insurance the added protection of not having to replace another persons property if you caused a wreck. These types of insurance also have a pre-determined deductible (out of pocket expense) that one feels they can afford. That amount is different for the house and car and different for the individual. For example, I may assume affordable risk (out of pocket expense) of $500 for my auto insurance and you may assume affordable risk (out of pocket expense) of $250. All other things being equal, my auto insurance policy will cost less than yours because I take on the extra risk/expenditure. Again, this insurance is purchased to protect one against a catastrophic loss. Home owners/renters insurance isnt for carpet cleaning and auto insurance isnt for oil changes.
Here is Health Insurance.
Most medical insurance covers a percentage of everything. Got the flu, an office visit to your doctor costs $120 but your co-pay is $20. Time for your annual physical, pay $20 for a $200 service. Accidentally break your finger and visit the ER, insurance pays 80% of that $1500 in medical care. There is nothing catastrophic about a $120 to $200 office visit, pay the bill. $1500 in ER may or may not be catastrophic depending upon ones financial situation.
My Thoughts
For some reason (unknown to me), many people have come to the opinion that health insurance should be involved in all health care expenses. They want their health insurance to help pay for a few stitches if they accidentally cut themselves. They want their health insurance to pay for their annual physical. Those are not catastrophic events. One wouldnt expect their auto insurance to pay for a flat tire or an oil change. Why is minor and routine medical service considered differently when it comes to insurance? (scroll back up for definition of insurance) The purpose of insurance is to protect one against catastrophic loss, not to provide maintenance.
When it comes to medical insurance, I want it to be more like my auto and homeowners insurance. Let me decide how much I am willing to pay in deductible, cover 100% beyond my deductible, and set the rates accordingly.
