Insurance sells peace of mind: pay a modest premium today so you won’t face catastrophe tomorrow. That promise sits at the heart of modern finance. Yet an uncomfortable paradox: insurers make profits not just by re-investing premiums (different financial market), but also by reducing payouts — denying, delaying, or discounting claims. When fear becomes the sales engine and claims handling becomes a profit lever, policyholders lose faith and the social contract frays.

Insurance asks customers to trade certainty for protection (mostly by selling fear): give up money now to avoid ruin later. In this social thought, I share how insurers engineer complex systems of contractual language, money flows, and fear psychology—ultimately allowing companies to profit from nothing, much like a Ponzi scheme.

How fear became the product

Sales teams sell more policies when they connect premiums to worry. Fear works: people buy protection against vivid, emotionally loaded risks (house fire, medical catastrophe, sudden death). Marketing magnifies those fears, positioning the insurer as the only credible savior—much like BankBazaar’s long-running fear-driven campaigns. This cycle benefits both parties — the insured gains perceived protection, the insurer gains more customers and premium money. But fear-driven sales can obscure exclusions, waiting periods, and fine-print clauses that later justify denials or reduced payments.

Insurance company modus operandi:

• Emotional appeals in marketing that highlight worst-case scenarios.
• Complex policy language that hides exclusions or conditional coverages.
• Brokers and agents incentivized by commission to sell more policies — not necessarily to explain claim limitations thoroughly.

Denied, delayed, discounted: common strategies (and how they work)

Apart for using premium money on other money market to make profit, Insurers deploy multiple claims-management tactics that reduce payouts. Below I describe them in plain terms so readers recognise patterns and protect themselves.

1. Denial
   — Insurers search policy language for exclusions, misstatements, or procedural lapses to refuse payment. e.g. Death by Covid
   — Result: immediate financial burden on the policyholder.
2. Delay
   — Slow approvals, repeated document requests over post mail, and protracted investigations push payouts months (or years) out.
   — Result: insureds face cashflow stress, sometimes accept low settlements.
3. Discounting / Lowballing
   — Offer quick, below-market settlements to avoid litigation or reputational hits.
   — Result: claimants accept less because they need cash or don’t want a long fight.
4. Rescission / Voidance
   — If the insurer finds a material misrepresentation (e.g. inaccurate application answer), they may cancel coverage retroactively.
   — Result: insurer returns premiums and refuses claims — but damage already happened.
5. Complexity & Burden of Proof
   — Requiring expert reports, multiple estimates, or specific forms raises the bar for claimants.
   — Result: some claims fail for procedural reasons, not merits.
6. Sub-limits and Depreciation
   — Policies include sub-limits for certain items or depreciate value over time.
   — Result: insureds receive less than they reasonably expected.

These are procedural levers — often legal and common — that move money from claimants’ pockets back to the company’s balance sheet.

Consumers practical checklist

Earlier, these insurance Ponzi-like schemes enjoyed government backing through tax benefits under Sections 80C, 80D, and 10(10D). With those incentives removed under the new tax regime, insurance uptake declined. In response, insurers doubled down on fear-driven marketing and even pressured the government to reduce taxes to 0% to boost sales. I’ve paid lakhs in premiums over the past 20 years, only to realize that investing in yourself—healthy habits, regular exercise, and a better environment—often delivers greater value. Even if you still choose to buy insurance, Use this actionable checklist when buying policies:

• Read the key policy pages: coverage, exclusions, sub-limits, waiting periods, and cancellation/rescission clauses.
• Ask for plain-language summaries in writing from the insurer or agent.
• Compare claim payout reputations (reviews, third-party ratings, and consumer complaints).
• Avoid agents who pressure you to sign addenda or “extras” without explanation.
• Choose only Life Insurance and nothing more—just make sure the right nominee is added.

My personal take on insurance: it often resembles a Ponzi scheme built on nothing but promises, not even product—A brilliant idea to collect money today and defer payouts behind layers of caveats. In this ponzi scheme model, insurers win while many policyholders quietly absorb losses. Insurance only works when it keeps its promise. The moment profits are engineered by shifting money instead of honoring risk, the social contract breaks—and with it, the trust that allows societies to share risk in the first place.

#AskDushyant

Note: The names and information mentioned are based on my personal experience or on public domain; however, they do not represent any formal statement.

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