Kuta Beach

Kuta Beach

Monday, 5 November 2007

Insurance Against Exam Failure

There's an insurance for car theft, so why not have an insurance for exam failure?

Suppose a student were nervous about whether he would fail or pass can exam. To insure himself against loss of future income from failure of an exam, he can insure himself. If he fails, the insurance company pays him.

I proposed this to someone and they said, "Why do that? Why insure yourself? Why not just study?"

The same can apply to taking out an insurance to protect yourself from car theft. You could take measure to prevent the theft, such as buying a lock or an immobilizer for the car. Even so, any crook can damage the car, and if such a thing happen you'd want to be insured. Likewise, for an exam you can study extra hard, but sometimes there are just random things you cannot control, such as the kinds of questions that will come up, whether you will be sick on exam day, etc.

Someone else told me that if there were exam insurance then someone can just take out the insurance and then deliberately fail the exam to get the payout. But this problem exists in any insurance. It is called moral hazard. Actuaries have come up with ways to fix this problem, such as making the client pay a portion of the payout.

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