Psychological research suggests that within a controlled setting, humans are naturally drawn towards games of chance, where losses can be mitigated, and responsible play leads to entertaining sessions. This is especially true when the potential reward is far more significant than the effort involved.
However, when it comes to insurance and long-term financial implications, people behave differently, often looking ahead and weighing up the future pros and cons.
This explains why people willingly engage in chance-based entertainment, such as Paddy Power Slots, which are recreational forms of entertainment taking place within controlled settings. While simultaneously, people are trying to make more long-term decisions when it comes to insurance, health, property and income. The journal Frontiers of Psychology argued that the difference in how people interpret chance is “adaptive”.
Assessing Two Types of Chance
Neuroscience has shown us that dopamine levels spike when an outcome is uncertain, not necessarily when we receive a reward. This suggests that people seek out anticipation of an event, rather than the climax of an event itself.
It helps to explain why forms of chance-based entertainment are popular amongst many people. However, there is a stark difference between this type of entertainment (with controlled losses) and long-term financial insurance.
These types of entertainment involve digital games of chance, which have unpredictable rewards and emotional engagement. However, in these environments, all the chance involved is contained, and the scale of a loss is predictable.
The outcomes are immediate, the losses are limited, and you can volunteer whether to participate or not. These types of casino games have specific ways to limit the amount of losses and time you spend gambling, such as deposit limits and time restrictions. That means this type of chance-based entertainment is controlled.
However, when it comes to insurance and long-term financial implications, it is understood very differently. Chances that are associated with insurance are far harder to predict and can have significant long-term financial repercussions. Potential consequences can also unfold over time, meaning that the financial implications are much harder to see in the short term.
People separate these two forms of chance into separate categories – entertainment and financial. People will choose how much they want to take a chance on something depending on the situation and environment in which it occurs.
While the chance involved in these games is often seen as an acceptable trade-off for the enjoyment you receive, financial implications in insurance have significant impacts on one’s own security. Understanding this differing of risk psychology is crucial for insurers. It shows that chance-taking behaviour is selective depending on the scenario, and consumers choose when it feels acceptable to them.
What Types of Long-term Financial Chances are There
Life comes with many decisions that can impact your finances, and that is why insurance is a great way to minimise the potential impact that unexpected events can have on people. Not properly assessing and insuring these could lead to measurable monetary losses and even catastrophic financial ruin. Types of long-term risks people should be assessing include:
Property Damage or Theft
This type of insurance covers loss or damage to your personal belongings in and around your home. For example, furniture, electronics and other types of valuables. If there has been a fire or storm damage, or if your property has been stolen through theft or burglary, then insurance will be able to cover the loss, damage or items stolen from your home. In many cases, you will have to have proof of forced entry (broken window or door, etc).
Automobile Liability Claims Insurance
Automobile Liability Claims cover bodily injuries and property damage caused to others, including medical bills, repairs and legal costs up to policy limits. Third-party liability pays for the damage that you cause to others, but not your own repairs. The process for filing includes documenting the scene (such as obtaining police reports) and then reporting the claim.
Premature death
When dealing with the tragic passing of a family member or loved one, it’s important not to exacerbate the grief with financial issues as well. Premature Death/Term Life Insurance aims to protect a family’s financial security in the case of an untimely death. This includes covering outstanding debts and covers education costs. It often covers a specific period (i.e 10-30 years).
Why People Still Underinsure
Even though people know the statistical long-term implications associated with not having insurance, many people still choose to delay getting insurance or get reduced insurance coverage. Psychologically, this is due to factors such as ‘present-bias’, where people adopt the attitude that it won’t happen to them and they’ll be fine, which is a common misconception rooted in cognitive biases.
The RGA Behavioural Insurance Research stated that consumers systematically underestimate personal financial impacts, which leads them to not get the proper insurance they perhaps require.
As stated previously, the long-term consequences of these types of financial implications are difficult to see in the short-term. While on one hand, this means they can be more severe than chance-based entertainment, it does lead to many people undervaluing them and not taking the necessary precautions and insurance coverage.
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