Insurance And Gambling

Some people at times say that Insurance is a gamble, a wager or a bet where the Insured pays a small amount (Premium) to the Insurer company and the Insurer in turn offers to pay a large sum (claim) in case a particular event happens otherwise he keeps the premium.

While on the surface it may appear that this is no different then a person placing a small bet on a horse with the chance of getting 10-20 times his money back if that particular horse wins. While it is true that both Insurance and gambling involve money changing hands on the basis of chance events, it is important to understand the difference between the two.

The very act of placing a bet puts a person at risk of losing money. If he had not placed the bet there would be no risk and he would not care less which horse won or not. In Insurance, whether he insures or not, the risk is there and he is exposed to the possibility of a fire damaging his house. Gambling creates the risk whereas Insurance transfers an existing risk from one party to another.

The other differences between Insurance and gambling are

1. In Insurance, Insurable Interest is a pre-requisite whereas in gambling the interest is limited to the amount to be won or lost.
2. The Insured is immune from loss and his identity is known before the event whereas in Gambling the loser cannot be identified before the event.
3. Full disclosure (Utmost Good Faith) is required from both parties to an assurance contract whereas this is not necessary in a gambling contract.
4. Insurance contract is enforceable at law whereas there is no legal recourse for any of the two parties in a gambling contract.

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