“You’ve got to be nice to me now,” says Mickey.
The Devil appears in the form of a serpent. He coils around Mickey’s feet, slithering and looping in an endless knot of nocturnal nastiness.
“I’m always nissss to you,” says the Devil thpraying Mickey with therpent thpit. “You’re my favourite lost soul.”
Mickey steps out of the snake’s scaly embrace. It was getting jussst a little too tight for comfort. “No, today you’ve got to be really nice.”
“Why, pray tell?”
Mickey reaches into the inner pocket of his tattered jacket. “I’ve got a pen!” he says.
The Devil flicks his forked tongue. “Ooh, that’ssss wonderful. I can do all many of naughtinessss with a pen.”
Mickey holds his pen close. “You’re not getting it. This is my pen. It means that I am an heducated man. I am impotent.”
“Don’t you mean ‘important’, Mickey?”
“Because you’ve got a pen.”
“Indeedy. And not just any pen. This is a free pen.”
Mickey and the Devil stare intently at the pen. To be perfectly honest (which isn’t easy for either of them), it isn’t the world’s finest pen. It has a strong whiff of the orient about it. It no doubt rolled off a production line in some unsafe factory where the workers are paid in bowls of rice. But it is Mickey’s first pen and he loves it to bits.
“Bullssssssit,” hisses the Devil. “Nothing is free in thissss life except pain.”
“And when I die my dependents will get a lump sum to pay for my funeral expenses,” says Mickey.
The Devil chuckled. “I get it. You’ve bought some life insurance. A free pen. A free welcome gift and your first premium is free. That sort of thing?”
Mickey beams. “That’s it. And it was recommended by that nice man from the telly. So it must be good. Cos he was a nice man when he was on the telly. I can trust him.”
“And how much are you paying for this insurance?”
“That’s the best bit,” says Mickey. “Only eight pennies a month. And when I die my family gets a guaranteed £10. Ain’t that a great deal?”
Have you ever seen a snake laugh? It’s a mightily strange sight. It rolls over onto its back and wiggles from side to side. If it had arms it would wave them around. But it doesn’t so it can’t.
“What’s so funny? It’s not like I’m gambling my money away. This is a proper deal sold by a bloke wearing a suit and tie.”
The Devil loops himself into a scaly figure of eight. “Oh, my boy! My beautiful naïve boy. You will never be rich if you don’t learn to count. Your insurance is as much a gamble as putting a crown on Limping Nelly at the 4.15 at Aintree.”
“Haven’t you been listening? I told you that all gambling works because the odds of winning are worse than the payout.”
“How is this gambling?” asks Mickey.
“Lisssten to the numbers,” says the Devil. “They sssspeak to you, but in a very quiet voisssse.”
“Numbers never said anyfink to me,” says Mickey. “I hate maths.”
“You’ll never get to be my apprentice if you don’t know your numbers. Let’s see … eight pennies a month is 96 pennies a year. Let’s call that a pound. That’s ten pounds in ten years.”
“Aha!” says Mickey. “That’s how much the insurance policy will pay out.”
The Devil rolls his eyes. “That’s the gamble, my boy. Your insurance policy pays out the same amount whenever you die. If you die young, then you will win the gamble. You will get more out than you paid in. But if you live a good long time, the insurance company wins. You pay them far more than they pay you.”
“Mickey, Mickey, Mickey, of course it ssssounds complicated. That’s so you don’t think too hard about it. Never tell a sucker the full truth. And if you do tell him the truth, make is ssssso complicated that he can’t understand it. And then give him a pen.”
Mickey sits down to think about it. The Devil slithers around his knees.
“The things is,” says Mickey. “I don’t know when I’m going to die. If I die tomorrow, my family will really need that ten pounds.”
“I know when you’re going to die. And the insurance company has a pretty good idea. They will always pitch their rates at a level where they make money and most people lose out. It’s a gamble where they know the odds and you don’t.”
Mickey stares at the pen. “So this isn’t free after all? I’m paying for it. In the long run.”
The snake smiles. Which is quite a feat as it has no lips. “Bravo! You’re getting there, my boy.”
And the moral of our story is … all insurance is a gamble. And that is odd. When we take out insurance we like to think that we are reducing our risks.
This is what is really happening. The insurance company takes a risk that they will earn more from insurance premiums than they pay out. We take the opposite risk – that the payouts will be more than the premiums.
But it isn’t really a fair gamble because the insurance industry knows the odds. They have detailed statistics for average life expectancy, the frequency of car accidents, house fires, television breakdowns. And they will always, always pitch their premiums so that they win.
Just like the betting firms, the insurance industry knows more about the odds than we do.
Ah, but the insurance companies will argue that they are sharing the risks around. Some people will pay more than they receive, but others won’t. By averaging it all out, everyone can be reassured that they won’t be left with a bill they can’t pay.
And all the money to run the insurance industry comes from us – the paying punters. Every swanky office building, every executive in a suit, every television advert, every free pen … it is all paid for by the punters.
There is a better way. Ladies and gentlemen, welcome to the wonderful world of self-insurance. It’s a simple and easy way of beating the system.
All you need to do is this. Take all the money that you would have spent on insurance premiums (with a couple of exceptions) and stick it in a high interest bank account instead.
That’s it. No hidden extras. You don’t need to pay me a commission.
An extended warranty on your television, fridge, washing machine? No thanks. Life assurance and funeral plans? Nope. Cancellation cover for your holiday? No way. Pet insurance? Mais, non.
Sure, you will take the risk that your television might break down. By pooling all of your insurance payments you will be able to afford the repairs. The only way you can lose is if you are very unlucky and everything fails at once. But that is so unlikely that you might as well not worry about it.
In effect, your television insurance will help pay for your pet insurance and so on. You are sharing the risks amongst all the personal expenses and assets that you would otherwise have insured.
The one exception I would make is that you should insure the things that you couldn’t afford to replace. That probably means your house, your car and, if you are relatively young, your life. In America, I’d add health insurance.
But for everything else, tell the insurance industry where they can stick their free pens. Self insurance is the smart way to go.
Here is a funny thought. Police forces rarely buy comprehensive car insurance for their patrol cars. This might sound strange. Surely their cars are at risk of being damaged? The point is that they don’t want to pay all the insurance overheads – the swanky offices and the suits. If a patrol car is damaged, they pay to have it repaired. It works out much cheaper that way. They are using self insurance.
It’s the same with most large organisations. Here’s a graph about self insuring health benefits …
Oh, and pop out to the nearest stationers and buy yourself a pen. Go on, treat yourself.