Ariel Munin

Insurance in Simple Terms - The Science of Uncertainty

07/09/2011

Insurance is the science of uncertainty. However, two things are sure in this world: either we will reach retirement age or we won’t. This may be a very simplistic description of life but it covers the essence of life and pension insurance.

If one dies, friends and relatives will be sad and will come to the Shiva to console the family, but it is the family that will bear the loss and the economic void created by death. Insurance agents often joke that the family accountant comes to console the widow, the family attorney even goes a step further and brings his wife, but only the insurance agent comes with a check in his hand for the widow.

The economic value of a man is a complex subject, although it is clear that after a death, there is not only an emotional void but an economic one as well. It is up to the family to prepare for such a day by insuring itself against the death of one spouse. In professional language, this is known as risk insurance.

 Statistically speaking, most people do reach the age of retirement. Everyone rejoices and attends the retirement party from work. However, unless the family has planned for this day, it will quickly discover that although no one has passed away, an economic void has been created if the retiree did not allocate sufficient funds for his pension during his working years. He will be left with a sum of money insufficient to maintain the standard of living he was accustomed to before retirement.

Therefore it is clear that both death and retirement necessitate planning and insurance, for one of the two will surely occur.

Is there a third alternative? If you think about it, the answer is yes. Unfortunately, some people become disabled or are unable to work for other reasons and need long-term care. This is termed the loss of ability to work and is also a situation requiring preparation from the point of view of insurance.

In conclusion: every person faces three major risks: death before retirement, retirement or inability to work. Each risk has economic and psychological considerations and the question is whether to insure and for how much?

We will discuss death and insurance in the next chapter.

*Translated by Elsa Hadar

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