Does Insurance Provide Security? (Article 5 of 6)
- Details
- Created: Wednesday, 01 February 2006 18:46
- Written by Tom Lipp
Why buy insurance? Who likes paying premiums? Is insurance even Biblical? With tough questions like these, it’s little wonder I’ve avoided this topic. This is the fifth in a series of articles contrasting Biblical and Secular financial planning strategies.
In past months we looked at intelligent design, open vs. closed economic systems, praying for money, and lotteries. Now let’s juggle this hot potato.
Webster’s says insurance is a contract to guarantee [financial] compensation for a specified loss by fire, death, etc. Note insurance is not “protection from initial loss” but financial compensation in case of loss. This compensation does not come for free but costs money - regular premiums. Insurance had its origin about 4000 years ago with the Babylonians who insured marine cargos against loss at sea from storms or pirates. Insurance as we know it today can be traced back to England.
In 1680, Nicholas Barbon established “The Fire Office”, to insure homes after the Great Fire of London which devoured 13,200 houses. Insurance has commercial origins. Insurance companies are not charities: they want to make a profit.
God does not mandate insurance coverage. As far as I know, there is no Biblical instruction to promote insurance. On the other hand, there is no command against it. Insurance is a financial tool, and like any tool it can be used or abused.
A morbid example of abuse is individuals who commit suicide two years after buying life insurance. Life insurance will not pay out for suicide until the third year.
Sometimes insurance is unavoidable. It may be obligated by a lender (e.g. those who extend a mortgage on a house insist that you have house and life insurance).
Governments require insurance (e.g. car insurance for drivers). An employer may insist on it before giving someone a job (e.g. most contractors must have Workers Compensation Board insurance). Often insurance is optional.
So when should we buy insurance voluntarily? Personally I find that insurance does not increase my trust in God. To make matters worse, I am an insurance broker. Imagine selling what you don’t really like!
My preferred strategy is to minimize debt and self-insure when possible. That means build up a cash reserve (ideally in a tax shelter) for emergencies.
I avoid buying extended warranty plans on technical gadgets. If something goes wrong it usually goes wrong within the first 30 days of purchase, giving us enough time to return the product to the vendor for refund or exchange.
However, sometimes insurance is an excellent financial planning tool. Business insurance is one example. A corporation is designed by law to continue despite the death of its principal officers and key employees. Life insurance on executives insurance can make that goal an achievable reality.
Permanent personal life insurance is ideal for estate planning purposes. But remember, if God allows the calamity, then surely He can help us deal with the consequences. Herein lies the key to proper insurance use. If insurance decreases your trust in God, avoid it. If it increases your trust in God, (don’t ask me how) then buy it.
In close supportive communities, people will voluntarily help each other rebuild in case of loss. Unfortunately, our society does not see many closely knit communities. Our society encourages personal and corporate debt. Usually more debt means more need for insurance. Some buy all kinds of insurance in an attempt to insulate themselves against any and all types of financial losses.
But is there a better use of money than paying insurance premiums? By far the biggest mistake people make is that they shift from trusting God to trusting in riches, especially insured riches. Do you think Job would have purchased insurance if he had the opportunity?
