Health and Insurance

Health and Insurance

The principle of insurance

To facilitate understanding, we include a control concept, savings. By comparing them, understand the principle of insurance. If I take a fixed 10% of my monthly income for my future medical expenses when I get sick, then I have two options, one is savings and the other is insurance. So what would be the different results of the two options? First assume out a node, savings to 100,000 yuan when the insurance is also spent 100,000 yuan. If I choose to save, I have two possibilities in the future world, one is that I get sick and the money I save will end up being used to pay for medical expenses, the other is that I don’t get sick, then I’m cool and can use it to travel to eat and spend, in short I earn 100,000 dollars relative to the person who bought the insurance. But if you are seriously ill, 100,000 is not enough. Then you have to pay extra for your own additional savings. If you choose insurance, there are also two possibilities for me in the future world. One is that I get sick and then health insurance reimburses me, and if you buy a million dollars of reimbursement, your expenses are $100,000 within the range of one million. The other possibility is that I don’t get sick, and then I’m also spending $100,000. Comparing the two types of investments, we eventually find that the person who chooses to save his return ranges between minus one million and plus one hundred thousand, while the person who chooses insurance, his return is fixed, which is minus one hundred thousand. In other words, the role of insurance is to provide you with a fixed expectation, and those who choose insurance are essentially risk averse, while those who choose savings are essentially risk adverse.

How does insurance work?

Insurance is not about printing money, there is a logical principle for its sustainability, and this is where real commercial insurance differs from social security and health insurance.

Suppose I am a young person and there are two kinds of insurance products for me to buy, one is to treat all people of all ages equally, pay the same amount and get the same contract. The other is to divide those under 60 into one group and those over 60 into one group. You are 30 years old, which one will you choose? Nonsense must be to choose the group with age division, because the chance of getting sick at 30 can be the same as the chance of getting sick at 60? So the finer the grouping, the more reasonable and long-term the insurance will be. 30 year olds with no bad habits should have low premiums, while 60 year olds or those with bad habits should have high premiums. If they are all mixed together, it is the healthy people subsidizing the sub-healthy people. Such an insurance cannot work well in the long run. And where does our Social Security Medicare fall?

If one insurance policy is bought by only 10 people in the whole society and another one is bought by 10,000 people in the whole society, which product is better? For both insurance companies and individuals, it is clearly the latter. In the former case, if one of the ten people does not happen to be seriously ill, it is likely that the premiums taught by the ten people will not be enough for him, so the insurance company will lose money, and he will definitely have to raise the premiums if he loses money. And the latter 10,000 people can greatly reduce the risk, there will not be 1,000 people seriously ill, right? So the insurance company can only keep increasing the base of people who buy insurance to make it work reasonably well.

To sum up, for insurance to work, two conditions must be met: one is to be segmented, and the other is to have enough people to buy it. So when we buy insurance, if there is a large insurance company’s segmentation of the product is a good product, why is a large insurance company, because the company is large means that the number of people who buy insurance, that is, the sum is large enough.

To sum up, I have talked about the principle of insurance and the extreme and urgent importance of medical insurance for us, so we should love our bodies even more and not let ourselves step into that desperate situation. We have to do is to pay attention to their own health (later will science under the knowledge of health and medical examination knowledge), and then we have to buy commercial insurance as a supplement, and it is best to buy consumer insurance.

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