Comparison of Insurance with other Similar Factors
Insurance and Gambling compared:
Insurance is often erroneously confused with gambling .
There are two important differences between them .First , gambling creates a new speculative risk ,while insurance is a technique for handling an already existing pure risk .
Thus ,if you bet Rs 300 on a horse ,a new speculative technique is created ,but if you pay Rs 300 to an insurer for fire insurance ,the risk of fire is already present and is transferred to the insurer by a contract. No new risk is created by the transaction.
The second difference between insurance and gambling is that gambling is socially unproductive, because the winner’s gain comes at the expense of the loser .
In contract; insurance is always socially productive, because neither the insurer nor the insured is placed in a position where the gain of the winner comes at the expense of the loser. The insurer and the insured have a common interest in the prevention of a loss. Both parties win if the loss does occur .
Moreover, consistent gambling transaction generally never restore the losers to their former financial position .In contract ,insurance contracts restore the insured’s financially in whole or in part if a loss occurs.
Insurance and Gambling compared:
Insurance is often erroneously confused with gambling .
There are two important differences between them .First , gambling creates a new speculative risk ,while insurance is a technique for handling an already existing pure risk .
Thus ,if you bet Rs 300 on a horse ,a new speculative technique is created ,but if you pay Rs 300 to an insurer for fire insurance ,the risk of fire is already present and is transferred to the insurer by a contract. No new risk is created by the transaction.
The second difference between insurance and gambling is that gambling is socially unproductive, because the winner’s gain comes at the expense of the loser .
In contract; insurance is always socially productive, because neither the insurer nor the insured is placed in a position where the gain of the winner comes at the expense of the loser. The insurer and the insured have a common interest in the prevention of a loss. Both parties win if the loss does occur .
Moreover, consistent gambling transaction generally never restore the losers to their former financial position .In contract ,insurance contracts restore the insured’s financially in whole or in part if a loss occurs.