why is insurance legal in some states of America when gambling is illegal?

Question

As far as i can see offering insurance is the same as gambling. if i am an insurer i gamble on the fact that your possesions/car/whatever will not get stolen or broken or kill someone in the next year. then you bet against me saying i bet they will, and pay me money to make sure i keep up my side of the bet.
Does this make sense?

Answer 1

Insurance is VERY different from Gambling.
The main difference is that in insurance you smooth out the risk that already exists. For example if you drive -- you ALREADY have a risk of crashing your car, so when you insure it -- you are acting on an existing risk.
When you gamble in a casino you CREATE a risk. if you don't bet AT ALL the way the dice are going to come will NOT affect you.

So, from the viewpoint of the State it is OK for the people to REDISTRIBUTE the risk that already exists, but they don't want people to CREATE a new risk that is not necessary for a society.

Answer 2

Yes, it makes sense, and personally I agree. But when analyzed using legal contract principles, the two are subtly different.

A valid contract requires mutual assent (offer and acceptance) and some form of consideration. Consideration is either a legal detriment (duty or promise to do something) undertaken by a party, or a legal benefit conferred on the other party through bargained-for-exchange.

For insurance, you are paying money now in exchange for the insurance company's promise to do something (or give you more money) later. There is a condition attached to the reciprocal promise, in that the duty of the insurance company to act/pay does not arise until certain events (those covered) occur. Still, the promise is binding whether those events occur or not, and the insurance company does not have any control over whether those events occur.

For gambling, there is generally no direct conditional promise, except for the implied promise to pay if certain random results occur. Actually, as I attempt to highlight the differences, I continue to agree with you that they are really very subtle. But bear with me,

The main difference is in the control over the occurrence of the events that serve as the conditions for payment. For insurance, the liability is against natural conditions (fire, flood, etc) or acts of negligence by third-parties. None of these are under the control of the insurance company. Even no-fault insurance, which governs negligence by the insured, isn't really under the control of the insured, because most such policies do not cover intentional or deliberately reckless actions. Thus, if the insured has control over the outcome, the insurance policy doesn't apply.

For gambling, the liability is based on either random events affected by the skill of the players (for games of chance) or based purely on the skill of the players (for sporting events or races). That's also why there is a distinction between gambling on sports/races (generally allowed), versus games of chance.

In sports/racing, the risk is born based solely on third-party skill, and thus again outside the control of either party bearing the risk. This makes it more like insurance, where the events covered are also outside the control of the insurance company or the insured.

For games of chance, however, the instruments and actions are almost always under the control of the parties bearing the risk. Not only is there greater chance of fraud, but the parties are merely choosing to allocate risk of loss through money. There is no independent consideration other than exchange of money, and no dependence upon third-party activity (events) outside either party's control for the conditions. Hence, it is a different type of situation than the above.

Answer 3

When you compared car insurance with gambling, it was like comparing apples and oranges. Car insurance is required by law for the protection of both the insured and some third parties who might be affected. Gambling is not sanctioned by law; in fact it is prohibited by law, for the same reason as car insurance is mandatory. It is based on common sense. Everybody or almost everybody in the US owns and drives a car and therefore, it is something which we can define as one of the necessities of life, whereas gambling is a vice which a person is better of without.

Answer 4

Insurance exists as a service to the person who suffered the loss - the beneficiary.

An insurers rates are based on statistics - mortality tables show the percentage of deaths for a given age. Morbidity tables show the percentage of serious illness for a given age (used for health insurance). Other tables are used to show things like the number of cars that are stolen in a given area, etc.

These numbers are surprisingly accurate. Using this, an insurance company projects the amount of money it will be paying out. It then estimates the income in can earn from premiums as well as the return on investment of those premiums (the money just doesn't sit in a bank, they take premiums and invest in stocks, bonds, real estate, etc.)

Answer 5

LOL, I hate insurance.

I don't know of any state without a lottery, so gambling is legal nearly everywhere. I also don't know of any thieves that steal to afford their insurance habit.

Gambling has been a contributing factor in crimes. While insurance fraud is a crime, it hurts fewer people directly and doesn't make a city look bad to outsiders.

Answer 6

I never deal with insurance companies,I don't trust the cheating b*****ds,Ij ust take my chances,so far,so good.I remember reading some years ago of a conference of the top people in the british insurance market.First item on the agenda?How to avoid Paying out claims!

Answer 7

Interesting argument. I can see the betting aspects to it. In my opinion, the safety and security are more important in the eyes of law makers than the betting nature of insurance.