No, you're not. There is no guarantee that your payout on a claim will be less than the value of the premiums you paid in at the time you make the claim. Averaged over all people being insured, that will be true, but you are just one person, not the average of all people.
> To insure against a 10K risk, you have to pay 20K.
No, to insure against a 10K risk, you pay some much smaller premium periodically over time. There is nothing that says you must have paid in 20K in premiums before the insurance company will pay out 10K on a claim by you. The insurance company is insuring a huge number of people; all they care about is the average result, not the single result in your individual case.
Also, all the above assumes that only monetary value matters to you. But monetary value alone is not why most people buy insurance. Most people buy insurance for risk avoidance, i.e., peace of mind. They want to transfer the risk of having to make a large payout if something bad happens to someone else who can better afford it. That is a thing of value to many people, which is why they are willing to pay for it.
> No, you're not. There is no guarantee that your payout on a claim will be less than the value of the premiums you paid in at the time you make the claim.
With insurance it’s very difficult to get more than the market value out of the destroyed thing on payout. Even if you ignore premiums you’re usually just breaking even. This isn’t a law but it’s something insurance companies wised up to pretty quickly because the incentives get pretty attractive to commit insurance fraud when there is profit involved.
> With insurance it’s very difficult to get more than the market value out of the destroyed thing on payout.
Yes, of course. But that's not what I was talking about. I was talking about whether your payout is less than the value of the premiums you have paid; it can be even if the payout is not more than the market value of the destroyed asset.
To take an extreme example, suppose you buy a house for $100,000 and insure it for that value, and the next year the house is destroyed by a covered event. Your insurance payout will be $100,000 (which will be spent in rebuilding your house), which is the market value of the house, not more, but you are certainly not going to have paid anywhere close to $100,000 in premiums, so your payout will be much more than the premiums you have paid.
Of course this situation will be very rare, but that's the point: the insurance company certainly cares about not paying out more than the market value of the asset (for the reason you give--protecting against insurance fraud), but they don't care in an individual case about not paying out more than the premiums that were paid in by that individual customer. They only care about the latter on average, and of course their actuaries get well paid to make sure their premiums are high enough to ensure that they still make money on average.
No, you're not. There is no guarantee that your payout on a claim will be less than the value of the premiums you paid in at the time you make the claim. Averaged over all people being insured, that will be true, but you are just one person, not the average of all people.
> To insure against a 10K risk, you have to pay 20K.
No, to insure against a 10K risk, you pay some much smaller premium periodically over time. There is nothing that says you must have paid in 20K in premiums before the insurance company will pay out 10K on a claim by you. The insurance company is insuring a huge number of people; all they care about is the average result, not the single result in your individual case.
Also, all the above assumes that only monetary value matters to you. But monetary value alone is not why most people buy insurance. Most people buy insurance for risk avoidance, i.e., peace of mind. They want to transfer the risk of having to make a large payout if something bad happens to someone else who can better afford it. That is a thing of value to many people, which is why they are willing to pay for it.