To most people, Insurance is Gambling. Some even see Insurance as legalized form of fraud. The question is: Is Insurance Not the same as Gambling?
To Gamble is “to bet on an uncertain outcome, as of a contest. To take a risk in the hope of gaining an advantage or a benefit. “(Dictionary.com). Gambling as ‘the wagering of money or something of material value (referred to as “the stakes”) on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods.’ (Wikipedia) Typically, the outcome of the wager is evident within a short period.
Insurance on the other hand may be defined as a contract in writing under which one party agrees to indemnify the other party against a loss or damage suffered by it on account of an uncertain future, in return for a consideration called ‘premium’ (Wikipedia)
SIMILARITIES BETWEEN GAMBLING AND INSURANCE
* Both make use of the Law of Statistics (The Law of Large Numbers). The Law states that the more of something you have, the more likely the characteristic will tend towards average. For example, the more people you have in an insurance fund, the more accurately the insurance company can predict its losses and profit.
* Expectation of Huge payment. At the time of going into any of the two, there is an expectation of a huge payment which far exceeds the financial outlay
* Gamblers are risk-seekers whilst insurance policy holders are risk-averse. Whereas Gamblers seek risk in attempt to get more money, insurance policy holders buy insurance to reduce risk
* Risk in gambling is Speculative but insurance is Pure risk. Gambling involves a risk situation of Gain or Loss whilst Insurance deals with Pure risk i.e. there is the possibility that the event (e.g injury to person) will occur.
* Insurance involves a product/service for which you exchange money. Gambling on the other hand does not involve any service except for the stakes.
* Gambling is entertainment; insurance is business. People engage in gambling mostly for excitement and enjoyment.
* In Gambling, the parties are only interested in the money earned or lost (stakes) and not the occurrence of the event whereas in insurance, parties are interested in the occurrence of the
event since this is the main focus of attention.
* There is no profit motive in insurance contract. Gambling is formed solely because of profit making.
* The insurable interest is in the event in Gambling; in insurance, the insurable interest is in the non-occurrence of the event. The parties in a Gambling contract choose an arbitrary event on the occurrence of which one party wins whilst the other loses.
* Gambling is unenforceable in court whereas Insurance is a valid contract.