Beating Broke

Personal Finance from the Broke Perspective

  • Home
  • Get Updates
  • About
  • Contact
  • Privacy Policy

Powered by Genesis

Are Insurance Companies Just Big Ponzi Schemes?

October 12, 2020 By MelissaB 13 Comments

It struck me the other night, as I was reading a book and came upon a section on Ponzi schemes, that insurance companies are borderline Ponzi’s themselves.

Ponzi Schemes

What Is a Ponzi Scheme?

The definition of a Ponzi scheme is when the broker/banker/agent takes money and promises an unusually high return and then pays said return from the incoming money from other investors.  Eventually, when the incoming investors dry up, the agent can no longer pay the returns and the scheme comes crashing down.

Ponzi schemes are named after Charles Ponzi, an Italian immigrant who was the original Ponzi schemer.  In recent years, the most famous (and longest lasting) Ponzi scheme is attributed to Bernie Madoff.  Madoff’s Ponzi scheme is thought to have begun in the late 1980s or early 1990s and didn’t end until 2008 when he was arrested.  This Ponzi scheme cheated nearly 5,000 customers out of $60+ billion dollars.

Insurance Companies Are Set Up Like Ponzi Schemes

Now, let’s look at insurance companies.  We, as the insured, pay the insurance company our premiums in return for insurance against some sort of event.

With health insurance it’s against some sort of health event.  With car insurance, it’s against some sort of accident.

In any case, it’s a payment.  Or a return on the premium.  Very seldom will you actually come out with your entire investment.  And, unfortunately, you often have to fight for the payment.  Health care coverage may be denied if the health insurance company doesn’t find the treatment worthy of the expense or if they deem it experimental.  Likewise, if you file a home insurance claim too many times, the insurance company can choose to drop you as a customer.

Ponzi schemes
Photo by Daniel Tausis on Unsplash

For the most part, insurance companies are in charge and decide when to cut customers.  But what would happen if the premium payers dried up?  It would certainly get more difficult for the insurance companies to pay any claims.

How Insurance Companies Are Different from Ponzi Schemes

Where the key difference lies is that if you stop paying your premiums, the insurance company stops paying any claims for you.  Also, as a premium payer, you never really expect your money back unless you have a claim.  You’re paying for the “in case”–if it were to happen.

In a Ponzi, you’re investing your money specifically for the return.  You’re not going to stop investing as long as the returns are stable.  And a Ponzi only really dies when the new investors stop coming.  If new insured stopped coming to the insurance company, they would still have their current insured to collect premiums from.  However, as the years go on with no new insured clients and the current clients age, the insurance company could have difficulty paying claims.

Final Thoughts

Even though insurance companies seem to fit many of the criteria for a Ponzi scheme, no.  insurance companies are not Ponzi Schemes.  But, it sure feels that way sometimes.

Read More

Do Politics Have Any Place in Personal Finance?

How Much Car Insurance Coverage Do You Need?

When Do You Need Umbrella Insurance?

Filed Under: Financial News, General Finance, Insurance, Investing, ShareMe Tagged With: car insurance, health insurance, Insurance, madoff, ponzi, ponzi scheme

When Do You Need Umbrella Insurance?

September 7, 2020 By MelissaB Leave a Comment

You likely have the insurance you’re required to get, such as auto and home insurance, and you probably have health insurance, and hopefully life insurance.  For many, that’s enough insurance to adequately protect you and your assets.  However, in some cases, you may also want to consider more coverage.  If you’re wondering when do you need umbrella insurance, there are several situation when buying it may be wise.

When Do You Need Umbrella Insurance?

What Is Umbrella Insurance?

Think of umbrella insurance as an extension of the auto and home insurance you already have in place.  If you have an auto policy with a $500,000 cap for injuries sustained, and you have an accident in which several people are severely injured, that $500K may be used in very little time.  When that amount is exhausted, umbrella insurance steps in and covers the rest of the costs, up to the limit of the policy.

When Do You Need Umbrella Insurance?

Likely, most people living low risk lives do not need umbrella insurance.  The basic insurance they have in place will cover them.  However, there are some times when you’d benefit from umbrella insurance.

You Have Significant Assets

If you have assets over $500,000, you may want to consider an umbrella policy.

You Have a Teenage Driver in the Home

When Do You Need Umbrella Insurance?
Photo by Matt Chesin on Unsplash

Teens are inexperienced and can be reckless, increasing your liability.

You Frequently Have Visitors to Your Home

More visitors mean more chances for injuries or accidents to occur.

You Have a Trampoline

Fun, but an accident waiting to happen, especially if you don’t have net fencing around it.

You Have a Rental Home

A rental home can be a great income source, but having one opens you up to lawsuits and expenses, especially if someone is injured or if the house sustains damage in a fire or other weather-related event.

You Have a Pool

Minimize your liability by having a fence around your pool, but still, someone might drown or fall and hurt themselves.

You Have a Dog

You may think your dog is gentle, but it only takes once for a dog to get aggressive and bite someone.

Caveats

There are two important pieces of information, should you be considering purchasing umbrella insurance.

First, your rates on your existing auto and home insurance policies will likely go up.  If you buy your umbrella policy from the same company that you purchase your auto and home insurance, they may first want you to increase your coverage for those policies.  The umbrella pays out only AFTER the auto or home insurance is exhausted, so they want those limits to be high enough, which raises your premiums.

Second, if you are sued in the future and have your auto, home, and umbrella insurance with the same company, the insurer may hire you an excellent lawyer because they want to avoid paying out the money, if they can.

Few people discuss this type of insurance, and most people don’t need it.  However, if you have liabilities in your life, such as a pool where someone may drown or slip on wet tile and hurt themselves, you may want the peace of mind that umbrella insurance offers.

Read More

Does Your Car Insurance Pay for These Items?

When Do You No Longer Need Life Insurance?

4 Insurance Policies That Will Save You Money in the Long Run

Filed Under: Insurance Tagged With: Insurance, umbrella insurance

Clever Tips for Saving Money on Insurance

August 25, 2016 By Thomas Bawdy 2 Comments

Saving money is a topic that is on most people’s minds. Whether it’s spending less on groceries, powering down the utility bill, or shopping for the cheapest gas, there are plenty of great tips floating around the internet. You may have tried some of them yourself, hopefully with great results. However, there is always room for improvement when it comes to balancing the family budget.

If you are taking a hard look at your budget, you’ll need to categorize the ways you spend money. Some monthly costs are fixed, and others are flexible. Likewise, some costs are “needs,” while others fall partway into the “wants” category. Insurance is definitely a “need,” but there are ways to trim down the monthly bill. Read on for a few clever tips to help you keep saving money on insurance.

Own Less

They say the more you have, the more you have to take care of. It’s true. Owning things comes with responsibility, which invariably leads to an outflow of cash. For instance, if you currently own three vehicles, consider selling the one you rarely use. You’ll put money in your pocket from the sale, and you will save on your monthly auto insurance premium. Other possessions can be pared down, as well. Homes, valuable collections, and expensive equipment can all be downsized in the interest of saving money.

Pay a Higher Deductible

A quick look at online insurance plan comparison tools will show you that monthly premiums are lower when a plan has a higher deductible. Shouldering a $1,000 deductible is basically like insuring yourself. If you are a safe driver, you never leave the coffee pot on when you leave the house, and your home has an alarm system, go for the higher deductible and keep saving on insurance premiums. On the other hand, if you have a history of recklessness and you’re always strapped for cash, paying more per month and having a lower deductible might be in your best interest.

Ask for an Annual Review

Because a lot can happen in a year, it is wise to take an annual look at your insurance needs. As your family ages, your needs will change. Children become teenagers with a driver’s license, which can result in higher auto premiums. However, when they grow up and move out, you may qualify for lower premiums again. As you and your spouse age, your insurance needs will change too, especially if you decide to downsize your possessions.

Shop Around Every Year

Shopping for insurance has gotten easier, thanks to the internet. If you feel like you are spending too much, take a moment to use an online tool and shop for a better deal. Learn more about your options, and make an informed decision. You may be surprised at the money you can save each month.

Learning how to save money on your monthly expenses can be a lot of fun. After all, a dollar saved is a dollar earned. Saving money on insurance is simpler than you might imagine if you use the tips mentioned above.

Filed Under: Insurance Tagged With: Insurance

  • 1
  • 2
  • 3
  • …
  • 6
  • Next Page »

Join Our Newsletter
  Thank you for Signing Up
Please correct the marked field(s) below.

1,true,6,Contact Email,21,false,1,First Name,21,false,1,Last Name,2

Beat being broke by getting cash backs on your spending with Ibotta app.

 



  • Facebook
  • Pinterest
  • RSS
  • Twitter



Great Investing, Simplified: Get Stock Advisor for Just $99/year!

Beating Broke Recommends

  • Acorns – Invest Spare Change
  • Capital One 360
  • Republic Wireless

Follow Beating Broke on…

Follow @BeatingBroke

Improve Your Credit Score

Money Blogs

  • Bible Money Matters
  • Celebrating Financial Freedom
  • Christian PF
  • Consumerism Commentary
  • Dual Income No Kids
  • Gajizmo.com
  • Lazy Man and Money
  • Make Money Your Way
  • Money Talks News
  • My Personal Finance Journey
  • Personal Profitability
  • Reach Financial Independence
  • So Over Debt
  • The Savvy Scot
  • Yakezie Group
  • Yes, I am Cheap

Disclaimer

Please note that Beating Broke has financial relationships with some of the merchants mentioned here. Beating Broke may be compensated if consumers choose to utilize the links located throughout the content on this site and generate sales for the said merchant.