“Insurance Is A Racket”?

Many here in South Carolina feel that insurance coverage is more or less legalized extortion.  Usually, this thought arises after they’re disillusioned by what they’ve been paid for a claim or when they get a bill at policy renewal time.

Also, many negative feelings are created by callous handling of claims or a lack of clear explanation of the policy’s actual benefits.  Disappointment is always a bitter pill – and it feeds negative stereotypes of insurance carriers and agents.

We often say, “No one wants insurance – until they need it.” Insurance is designed to kick in after a catastrophic event.  It’s a way to secure a promise of some help in what might otherwise be a financially devastating situation.

Insurance is really just a contract obligating the insurance carrier to provide money and services to aid you when specific things go wrong.  Buying a promise is very different than buying a car since you can’t see it or feel it or touch it.  But when something truly bad happens it can come to the rescue and provide some help.

Notice I said “some” help.  Because we can rarely afford – or want to afford – help beyond the minimum required to keep us out of bankruptcy.  If your home burns to the ground you obviously want enough money to rebuild it.  But you can’t buy insurance that will rebuild a bigger, nicer home and send you on a around-the-world cruise, too.

If you could buy insurance that would pay benefits beyond your actual expenses some folks would be tempted to burn down there home on a regular basis.  That’s one reason why insurance doesn’t provide a windfall.   So, how come it never seems to be enough to satisfy us?

Insurance is designed to cover enough costs to help you stay on your feet financially.  Estimating how much money will be required to put you back where you were before the catastrophe can be tricky.

Sometimes we (as customers) don’t want to pay enough for adequate coverage or we (as agents or insurance companies) guess too low on the actual costs involved.    Either way the result of not enough coverage stinks.  That’s why there is so much litigation around insurance claims.

So, be sure you know how much you’re buying and why or you may be in for a nasty and unpleasant surprise.


photo by J.D. Griggs, USGS