Don’t bet on life like you would on lotto

President Duterte had just suspended the gaming operations of the Philippine Charity and Sweepstakes Office (PCSO), particularly the lotto. The President claims there is so much corruption that he had no choice but to suspend PCSO’s gaming operations.

Rest assured, however, that such gaming operations will be resumed. This time, hopefully in a corruption-free environment.

Regardless, the chances of winning the lotto will remain ultra slim. What are these chances? See the following percentage chances of winning a lotto game:

6/42 – 0.00001906%
6/45 – 0.00001228%
6/49 – 0.00000715%
6/55 – 0.00000345%
6/58 – 0.00000247%

So, why on earth do people still bet on the lotto when the chance of winning is almost next to nil? The reason they still do is because they focus on the huge prize and not on the odds of winning.

On the flip side, the odds of losing life or being afflicted with a critical illness early in life is probably low ( but not next to nil). Therefore, people are willing to bet they would have enough time to create the wealth that will serve as their insurance policy should they be called from life or be afflicted with critical illness. But this is where life differs from lotto.

A lotto game ends after every draw. A bettor is in control of the risks he takes as he chooses whether to bet or not. In life, the perils are continuing, there is no pause button. No one can tell when life will be snuffed out or when debilitating illnesses will occur.

Here’s the surprising thing. Life insurance companies are actually the ones betting when someone buys a life insurance policy. The life insurance firm is betting that the policyholder will not die or be afflicted with a critical illness immediately after buying the policy and/or at a young age. If that happens, the company will lose out.

The life insurance company is betting that its policyholder will live a long and healthy life. That long period between purchase of and claim against a policy will provide the life insurance company enough time to make the premiums grow and allow it to pay the claims with profit.

With life insurance policies, therefore, it is the life insurance company that is making the bet. It is one with its policyholder in believing that the latter will live a long and healthy life. But just in case the policyholder does succumb to death or illness early, the life insurance company stands ready to support the policyholder and his loved ones.

As an aside, the 2017 causes of registered deaths showed that 34 percent was due to diseases of the circulatory system (strokes and heart attacks); 18 percent, other diseases and health conditions; 15 percent, diseases of the respiratory system (mainly pneumonia); 11 percent, neoplasms (different forms of cancer); 8 percent, external causes of morbidity and mortality (including accidents); 7 percent, endocrine, nutritional and metabolic diseases (chiefly diabetes), and 7 percent, infectious and parasitic diseases. In other words, 92 percent of registered deaths was due to diseases and deteriorating health conditions, many of which are covered by health insurance.

Being a fund manager for a very long time, I know there is no investment in the world that is fully guaranteed. In investing, the investor makes the bet his investment will make money. With life insurance, it is the insurance company that makes the bet.

In a sense, with life insurance, you always win.