Is Insurance a Scam?

What a Scam Actually Is.

A scam has a specific definition. It requires a false promise, an intent to deceive, and a failure to deliver what was sold. The person running the scam knows the promise is hollow. The product either does not exist or was never going to work. The goal is to take your money and disappear.

Check those three elements against how insurance actually works.

What people are usually describing when they say insurance is a scam is a coverage dispute, often one that traces back to something that was missed, skipped, or misrepresented along the way. That is a different problem. And it has a different solution.

People Have Always Pooled Together. It Never Lasted.

Throughout history people got together to help each other out. Through churches, through mosques, through synagogues, through fraternal lodges, mutual aid societies, through informal circles of friends. And the stories always happened the same way.

At first there was a lot of money and even more generosity. Then the cutbacks came, because the number of people in the circles got smaller. They dwindled. And some people were left without help. Nobody wanted that. But with rare exception, it always happened.

The structure that became modern insurance exists because every informal circle before it eventually ran out. Not because the people were bad. Because generosity alone has never been enough math. The boundaries are what make the promise keepable across generations.

With the mutual aid societies, families would quietly work to make sure their members didn't go without. They left clothes and supplies on porches with money, and people showed up to fix roofs and steps. They saw the smiles on the children who had full bellies and a bicycle to ride.

Each time you pay your insurance, it does the same exact thing. The children smile. They can keep their home. You just don't get to see the smiles. But rest assured they are there.

So Why Do People Say Insurance Is a Scam?

Because it went from that small circle to an insurance company, those who don't like boundaries sometimes give a few wrong answers during the application. They pay less than their fair portion and look for ways to not contribute more. They rent out their house and never call their agent to make sure their policy actually covers renting it out. They start driving for a courier service or a pizza restaurant and never call their agent to find out if any changes are needed, even though they just went from driving 10 or 20 miles a day to maybe 100 or more. They never read the contract. They never ask: "Hey, is this covered?"

They would rather skip a five minute phone call that would have told them exactly what was and was not covered, and what it would cost to pay a few percent more to make sure it was. And then, when a claim is not paid?

Their neighbors hear the friction. They hear the claim that insurance is a scam. But they didn't hear the wrong answer given to the agent when the policy was set up. They didn't hear about the missed annual policy review. They only heard the end of the story.

If a claim was denied and you believe it was valid, there is a process. You can appeal through the carrier, file a complaint with your state's Commissioner of Insurance, and pursue the matter in court if necessary. Read more about what it actually takes to deny a valid claim: Does Life Insurance Pay Out?

What the Law Actually Requires.

Insurance companies operate under the supervision of Commissioners of Insurance, typically appointed by the governor of each state, and are subject to the courts. One principle has held clear throughout that entire history of regulation: insurance companies must pay valid claims.

Every state has a department dedicated to this. Carriers must file their rates and policy forms for regulatory approval. They are subject to market conduct examinations. They must maintain minimum reserve levels to ensure they can pay future claims. If a carrier acts in bad faith by wrongfully denying a claim, they face damages well beyond the original claim amount. Courts have consistently held that policyholders have enforceable rights, and they use them.

Ratings agencies like AM Best exist specifically to hold carriers accountable to their financial obligations. An A-rated carrier has been independently evaluated for its ability to pay claims. That rating is not a marketing badge. It is a public accountability measure.

Is it perfect? No. No product or service is. Is it unfair? No. I put my personal reputation on the line to say that it is definitely fair. Could insurance companies make improvements? That is exactly why carriers get better every day.

But at the end of the day, insurance companies are those same mutual aid groups that existed all through history. They just got bigger and added boundaries to make sure their legacy can be relied on for generations instead of running out of money when the circle gets small.

What Can You Do?

The circle works when everyone in it does their part. That means you too.

• Pick the right agent. An independent agent works for you, not for one company. The right agent asks the questions that protect you, tells you what is and is not covered before you need it, and answers the phone when something changes in your life.
• Pick the right company. Not all carriers are the same. Financial strength ratings, claims history, and underwriting guidelines differ. The cheapest policy is not always the right policy.
• Take time to learn how it works. Your family and children rely on you. A few hours understanding your policy is the same investment your great-grandparents made when they showed up to the lodge meeting. The glossary is a good place to start. The circle only works if you know you are in it.
• Have an annual review with your agent. Life changes. Coverage has to keep up. Did you start a side job? Rent a room? Add a driver? Every year, sit down and ask the uncomfortable questions out loud. I am doing this now. Is it covered? Can you show me in the policy language? A good agent welcomes that conversation. That is the whole point.

Common Questions.

Is insurance a scam?

No. Insurance is a legal contract enforced by state Commissioners of Insurance and courts. Carriers are required by law to pay valid claims. The history of insurance stretches back thousands of years through mutual aid societies, fraternal lodges, and burial clubs long before any modern company existed.

Why do insurance companies deny claims?

Most denied claims trace back to something the policyholder did or did not do: inaccurate information on the application, coverage that was never purchased for the specific situation, or a change in circumstances that was never reported to the carrier. A claim denial is almost never arbitrary.

Can an insurance company just refuse to pay a valid claim?

No. A wrongful denial is a bad faith act that exposes the carrier to damages well beyond the original claim amount. State Commissioners of Insurance investigate complaints and can fine or revoke the license of carriers who deny valid claims. Courts have enforced policyholder rights consistently for decades. See also: Does Life Insurance Pay Out?

Who regulates insurance companies?

Every state has a Commissioner of Insurance, typically appointed by the governor, who oversees carrier conduct and enforces the obligation to pay valid claims. Courts provide additional oversight through decades of case law that consistently sides with policyholders on legitimate claims.

What should I do to make sure my claim gets paid?

Answer every application question honestly. Call your agent when your situation changes: a new rental property, a new side job, a new driver in the household. Read your policy or ask your agent to walk you through what is and is not covered. A five minute conversation before a claim is always better than a dispute after one.

Is it worth having insurance even if I never file a claim?

Yes. You are not paying for a claim. You are buying into a pool that exists whether you need it or not. That is not a scam. That is how every mutual aid society in history worked, and why the ones that added structure outlasted the ones that relied on generosity alone.

Let's Make Sure You Are Actually in the Circle.

Lenny reviews your coverage, answers the questions you haven't thought to ask yet, and makes sure your family is protected the way you think it is.