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The Best Bet - Lotto or Insurance….?

November 1, 2013

Professional punters focus on the probability of a win (or event occurring) versus the reward for putting their money on the line. They crunch the numbers incessantly and find perceived value in an attempt to grow their betting stake as quickly and with the lowest amount of risk exposure possible.

 

What if we looked at the potential investment and payoff of Lotto vs Insurance? Which would a professional punter pick? It’s obvious based purely on the odds of each event occurring, as illustrated in the above graphic, but what does it  look like when we examine the numbers in detail (albeit reasonably fuzzy detail)? What do you actually stand to “win” with insurance?

 

Let’s focus our attention on one form of insurance called income protection, as the ability to generate income from effort is arguably everyone’s best asset, and almost everyone SHOULD have this cover. Income protection insurance is used to substitute a portion of an individual’s income in the event that they are temporarily unable to work due to illness or injury. In Australia the maximum you can cover is generally 75% of your total income i.e. if you earn $100,000 and this is covered to the maximum level, you would receive $75,000 per annum in income protection payments until/if you are able to return to work.

 

Let’s first compare the costs:

 

  • Cost of a $100,000 Income Protection standard policy for an average 30 year old (white collar worker) until age 65 with a “30 day waiting period” (insurance speak for how long before they show you the money!) and level premium (premium stays the same for the life of the policy) = Men $733 per annum, Woman $1,161 per annum (after tax – the tax man likes income protection and in most cases, always confirm with your accountant, will let you claim the premium amount as a tax deduction.)

 

  • Cost of lotto div 1 ticket, 18 games, system 12 = $1,152 per annum ($24 a week)

 

Now the WIN!

 

So, if you fell ill or were injured tomorrow and, in the most extreme case, were to claim income protection benefits until you reached the end of the policy period at age 65 how much will you have “won”?

 

  • Insurance Prize = $2,625,000 (1 in 200 chance)

 

  • Lotto Prize = $4,223,220 (1 in 8,145,000 chance)

 

What about the smaller, partial wins, I hear you ask? Great question. The odds of anyone being unable to work for 3 months or more before the age of 65 as a result of an accident or illness…...about 1 in 3….ridiculous right! So that’s a 1 in 3 chance of an $18,750 payoff (3 months of benefits). On the lotto side to win an amount equal to $18,750 you are looking at odds of about 1 in 678,755 (Division 2 win).

Now, you could certainly argue that with the lotto win you could live off investment earnings indefinitely and not utilise the capital, which is true however history suggests that Lotto winners don’t always make the wisest choices when utilising their winnings……and aren’t necessarily happier for the experience.

 

Dollars aside, what you are actually insuring by having income protection is something that has no possible monetary value, yours and your families security and future! I don’t even gamble, I hear you say. By not having insurance you are taking the ultimate gamble.

 

Verdict: Professional punters ain’t putting a dime into Lotto before they are comprehensively insured! Contact us HERE if you need insurance or would like to discuss your insurance needs in detail (Unfortunately only about 1 in 3 people have income protection FYI – don’t be one of the “unlucky” ones).

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