In a 1996 episode of The Simpsons entitled “Hurricane Neddy,” the house of Simpsons’ neighbors Ned and the still-alive Maude Flanders is destroyed in a storm. The town is stunned to learn that straight-arrow Ned Flanders does not have insurance on the the house. As his wife Maude explained, “Neddy doesn’t believe in insurance. He considers it a form of gambling.”
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So what are we to make when we see insurance offered in a casino?
Of course, insurance is gambling. That is why actuaries at insurance companies get paid the big bucks – to accurately price the probability of some bad outcome happening in the future. In a casino insurance is offered only at a blackjack table and the potentially future ill winds that are swirling is a dealer blackjack. At the blackjack players all players must act as their own actuaries.
The only time the pit boss puts on the casino’s sales cap to sell insurance is when the dealer’s up card is an ace. If a ten-value card lurks beneath that bullet the resulting blackjack will end the game and the dealer will rake in all bets, save the player blackjack which will push. So the house offers a side-bet that will protect the player and recoup those lost chips – insurance. The amount can be up to 50% of the original wager and will pay 2 to 1 so if the dealer has blackjack all the chips can be recovered that were lost on the initial play.
Players are not insuring the viability of their own hand. Insurance is a bet only on whether the dealer is holding blackjack with an ace showing. So what do the actuarial tables say about this insurance gamble?
The odds that a ten, jack, queen or king are resting under the dealer ace are roughly 4 in 13, easily calculated since there are 12 ten-value cards in a 52-card deck. That is a dealer blackjack probability of about 31%. Given those odds the payout on insurance should be closer to 3 to 1 but the house is offering only 2 to 1. Insurance is not a player-friendly proposition.
But paying the premium on the casino’s insurance plan does not always have to be a bad play. Advanced players employing a card counting system have a strong notion when a shoe is particularly rich in ten-value cards. If a dealer ace pops up when the likelihood of an accompanying ten-value card is high the percentages tip in favor of the dealer having blackjack. In fact, buying blackjack insurance can be one of the strongest plays a card counter can make.
Let’s look at a real-life example. The bet is $10. The dealer gets an ace and then begins to ask each player in turn at the table if he or she wants insurance. You are the last player to be asked. Before you, some players take the insurance and some players don’t. Do those players taking the insurance know the shoe is rich in tens? It takes seemingly forever for the dealer to work around the table to you. All the while that ace is looking awfully menacing. You know that buying the insurance is not the correct play but “Insurance Pays 2 to 1” is the largest thing printed on the felt, gosh darn it. Just a $5 wager will save that doomed $10. The dealer finally gets to you and offers insurance and you say… .