At first glance you could say that a life insurance and a bet have nothing to do, right? We can not bet on whether we are going to have a mishap or about our own death, at least legally. However, insurances, although they do not, do work with the possibilities that we have of dying . The truth is that insurance and bets have more to do than we usually imagine.
Insurance and bets have a lot in common
What we have introduced in the previous paragraph serves to understand that life insurance and betting have many things in common, especially from the economic point of view. In both cases the payment of an amount of money to a beneficiary is agreed depending on what happens in the future. That is, you work with the probabilities.
What mainly differentiates them is the legal and cultural aspect, because neither insurance nor bets are comparable in one or the other. While insurance is considered a product of public interest with a preventive economic objective, gambling has a leisure component . Insurance, in fact, is mandatory in some cases, as insurance you already know. (Liability insurance for companies, car insurance, etc.).
A shared history
Some fairly primitive forms of insurance had already been born when, in 1687, on Tower Street, in an area near the London docks , a café opened its doors.
By this time, especially the boats were insured, which were one of the economic pillars. Generally the merchants received money to finance the trips of the ship , but if they were shipwrecked, they did not have to repay the loan. This depended on the country since there were different ways to manage this secure primary.
The cafeteria started to become very popular. There the clients gathered to enjoy good coffee, but also to gossip about what was happening in London : if they executed this or that navigator, if this or that ship arrived at port, etc. And the gossip went to bets.
The owner of the cafeteria, called Lloyd’s, realized that his customers loved both the coffee and the information that allowed them to argue their bets , so he created a newsletter called “The Lloyd’s List” where he published everything his network of informants told him.
In this cafeteria boats began to be auctioned and also to be sure. Right there, contracts were drawn up where the insurer signed as subscriber. Little by little, it began to become difficult to define the limit between what were bets and insurance .
80 years after the opening of the cafeteria, a group of regular insurers of the same formed the Lloyd’s Society , one of the most famous names today in the insurance industry.
Financial derivatives: between insuring and betting
Currently there are ways to conduct business that confuse the boundaries between what is secure and gamble. The financial derivatives market is an example.
A financial derivative is a contract that allows two parties to bet on something that can be very varied: the weather, the price of cereals, fluctuations in the exchange rate, etc.
These derivatives can work as a form of insurance. For example: if a wheat crop company bets by means of a financial derivative that the price of wheat will fall and it finally does, it would be protecting itself. Of course, the advantages are not the same and the differences are clear. It is a bet that works as an insurance , said in a very simplified way, and not an insurance that works as a preventive means.
What is the limit then between insurance and bets?
By definition, insurance and bets are not the same , and they do not work in the same way, even if they share things in common. Yes, insurance works with chance, like bets, but its objective is very specific. Bets can work as insurance, but their benefits are not as defined as they are in a mature product as insurance is. To Caesar what is Caesar’s.
If you do not want to bet your future, make sure you have an insurance broker like Nogal . Your security, our commitment.