We Don’t Get The Price Of Wood From The House

  • Let’s say lumber increases in price by 20%. Guess what happens to the price of a newly-constructed home? Higher.

  • Let’s say the price of raw oranges increases by 20%, what happens to the price of orange juice?

  • Let’s say the price of eggs increases by 20%, what happens to the price of omelettes?

Insurance premium is the calculated, estimated cost of inputs, and in health insurance, that input is the cost of the healthcare services that a person would receive, like lumber, raw oranges, or eggs.

Everyone understands the first three bullet points, right? A problem with personal finance is that people use different logic when it comes to money.

How sure am I of this? When the inputs are simple, call it life insurance, and you are a 40-year old Miss Perfect, the price differences of 20-year term life insurance will be much less than 1% difference a year. And if a carrier makes an error (which does occur, that error is corrected quickly, i.e. that policy gets repriced or eliminated altogether, you’re welcome Clara M).

We are back to our actual favorite sport, called Find Someone Else To Blame.