Is Insurance a Scam?

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 Life 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.

Here Is What Actually Happened in 2024.

In 2024, U.S. life insurers paid $88.5 billion to the beneficiaries of policyholders who died. That is 3.7 million families. The mortgage was covered. The children's college fund did not disappear overnight. The light stayed on.

Of all the claims processed that year, less than three tenths of one percent had any portion still in dispute at year end. To be precise: that is a year-end dispute figure, not a denial rate. It measures the share of beneficiary payments still unresolved on December 31st, not the share ever challenged. The reasons for dispute include material misrepresentation on the application, a death during the contestability period, or missing documentation such as no proof of death.

Less than three tenths of one percent. That is the number. Not because insurance companies were pressed into generosity by regulators. Because that is how the math works when the circle holds.

Source: American Council of Life Insurers, 2025 Life Insurance Fact Book (80th Edition), Tables 5.2 and 7.7

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.

Is it perfect? No. No product or service is. Is it unfair? The design says no. The law says no. Eighty years of claims data says no. Could insurance companies do better? That is exactly why carriers improve every year, and why financial strength ratings from services like AM Best exist to hold them accountable.

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 from services like AM Best measure whether a carrier can actually pay what it promises decades from now. Claims history and underwriting guidelines also 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.

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.