Season 1
EP02 - Insurance Companies
Why insurance companies need customers to lose money. Learn how insurance pricing works, actuarial science, and the business model behind insurance policies.
I've never crashed, never been sick, never had a break-in…
Why am I paying thousands every year?!
Congratulations.
You just discovered the second greatest magic trick after banking.
So insurance is another scam?!
Not a scam. A bet.
And the house always wins — by design.
Insurance only works if most customers lose money.
95 people lose money. Their premiums pay for the 5 unlucky ones… plus the company's profit.
So I'm paying for everyone else's problems?!
Exactly. That's called risk pooling.
Without losers, there's no money to pay the winners.
...well, if you really think about it, its a bad game to be winning anyway.
If you have to be claiming, it must mean there's something wrong with your life
And I wouldn't want anything bad to happen to you.
B-But someone is still losing money so they stay rich?
If it was so easy, everyone would try to get into the insurance business.
The truth is insurance is a game that can only be played by those with enough capital.
Also, a bad prediction or luck wipes you out.
That's true… we can't predict misfortune. Then how do insurances avoid losing big?
With enough customers and data they will know the exact probability you'll claim.
Car crash? 6 % per year. House fire? 0.03 %. They price it so they always win on average.
The perfect customer pays for 40 years and dies the day after the policy ends.
That doesn't sound too bad?
Let me guess, there must be a catch of how they still got me to overpay them for a game they're already winning, right?
Fufufu you are sharp.
Mathematically and financially, insurance must be a negative-EV play for consumers.
The only reason you buy it is to avoid letting unlucky events derail you from your usual lifestyle.
Returns compound, so does risk. You buy insurance to stop risk from exploding.
This means it is really foolish to buy insurance for things you can afford to lose.
Pure profit for them.
I've been scammed for years…
Insurance isn't evil. It's a tool. Use it wrong → you're the product.
From now on I only insure things that can bankrupt me!
But my insurance is really expensive…
No choice, you gotta cut those you can.
But certain insurances are really problematic… the law mandates them.
Car insurance and social security, for example…
H-Hey, doesn't that means we are getting screwed again!
Of course~ That's why we will be talking about Social Security next time~
EP01 - Fractional Banking
Learn how fractional reserve banking works. Understand how banks create money through lending, money multipliers, and the fractional banking system that powers modern finance.
EP03 - Social Security
Understanding Social Security as a pay-as-you-go system. Learn how Social Security funding works, why it's not a savings account, and the challenges facing the system.
