Is insurance a form of gambling? The Ned Flanders approach to travel

For those of us who have grown up with the concept of insuring important or expensive things, the idea of ​​it being a form of gambling is usually quite strange. After all, there’s a world of difference between the glassy-eyed and bad decisions that fill the pokies venues, and the sensible mainstream idea of ​​insurance. In fact, insurance can be compared to gambling – but only in a very abstract sense. Today we explore the Ned Flanders approach to travel and travel insurance… and why his ar-diddly arguments just don’t hold up for most!

The Ned Flanders approach to insurance

Actually, the school of thought that says insurance is a form of gambling is much older than Ned Flanders (ultra-religious neighbor of The Simpsons). However, the pop culture reference to Ned’s faith is quite likely the first time many of us in the West have come across the concept. In the 1996 Simpsons episode, Hurricane Neddy, a hurricane hits Springfield but only destroys the home of Flanders. When Marge asks about insurance, Maude says Ned didn’t believe in it – he considered it a form of gambling.

The rationale behind this is that when you buy home insurance, travel insurance, etc., you are essentially making a bet with the insurance company that a specific event will not happen (the destruction of your home, getting sick while abroad, etc.). ). The insurance company is betting it won’t happen.

The difference between insurance and gambling

The idea that insurance is the same as gambling seems to be nothing more than an exercise in twisting logic when you look at the purpose of insurance as opposed to the purpose of gambling. People buy insurance because:

They want to limit financial losses in case something (quite unlikely) happens. In travel insurance, this would be the risk of getting sick or injured, becoming a victim of a crime, or experiencing logistical problems that entail financial losses.

People gamble because:

They want to win a large amount of money without working for it (possibly the reason religions often object).

What is an Aleatory Contract?

An aleatory contract is a more precise name for the form of contract that travel insurance represents. Its definition is ‘a contract in which the performance of one or both parties is contingent upon a particular event’. These contracts can mean a big ‘gain’ for one party and a loss for the other. With today’s insurance environment, the win and loss ratio is usually much more even than gambling.

So, what is the purpose of insurance?

Travel insurance, and insurance in general, provides an essential social service. If people had no choice but to take on the risk of owning a home, owning a car, being liable for their own foreign medical expenses, etc., they might never do any of the above activities. Consider that while Australia has socialized healthcare, almost every other country in the world has not… and medical bills can run into the tens of thousands very quickly. Without the small cost of travel insurance, very few people would leave their home countries. We would have a fraction of the understanding of other cultures, languages ​​and religions that make our world so rich today.

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Rather than thinking of vacation insurance as a gamble, it’s much more helpful to consider that you’re “paying for your peace of mind.” You pay a small amount to limit the enormous financial damage that could occur in the future. When you look at it that way, it’s definitely worth it!