Insurance and MLM are two completely different concepts and practices that differ significantly in nature, purpose, and mode of operation. The difference between insurance and MLM will be explained below:
I. Definitions and Purpose
1.Purpose and definition of insurance:
Purpose: The purpose of insurance is to help individuals or businesses transfer risk, providing financial compensation and protection to alleviate financial stress due to unexpected events, losses, or risks.
Definition: Insurance establishes a contractual relationship through the payment of premiums by the policyholder to the insurance company, and within the scope of the risk agreed in the contract, the insurance company bears the risk and provides compensation or insurance money when needed.
2.Purpose and Definition of MLM:
Purpose: The purpose of MLM is to obtain returns and profits by recruiting downline members and selling products as the main means. MLM organizations usually scale up by developing a multi-level sales network.
Definition: MLM is an illegal business model that works by recruiting other members and making them pay a fee to join, and then the new members continue to recruit more downline members in return for making a profit. MLM organizations tend to emphasize the payment of joining fees and the recruitment of downline members.
2. Comparison of operation methods
1.How insurance works:
Contractual relationship: Insurance is a binding legal relationship established based on an insurance contract, which clearly stipulates the responsibilities of the insurance company and the rights and interests of the insured.
Risk transfer: The insurance company assumes a specific risk under the insurance contract of the insured, providing compensation or insurance money to the insured. The essence of insurance is to allocate specific risks to the entire insurance organization.
2.How MLM works:
Recruitment model: MLM promotes products or services by recruiting members and developing a downline network, and recruited members are encouraged to continue to bring in new members.
Joining Fees: MLM organizations usually require members to pay a joining fee or invest to qualify for joining, and to earn profits as a result. The onboarding fee for new members is often used to reward the senior members, rather than for the main purpose of actual product sales.
3.Health Risk Management:
Insurance companies determine premium levels through risk assessment and management strategies and set premiums based on the age, health, and other factors of the insured.
MLMs often lack strict health risk management for participants, and joining and profiting depends more on recruiting new members than on individual-based risk management.
3. Risk comparison
1.Risk Sharing:
The core purpose of insurance is to transfer the risk to the insurance company and obtain insurance coverage by paying a premium. In the event of an accident, the insurance company assumes the liability for compensation and helps the insured reduce the financial burden.
Participants in MLM are exposed to greater risks and uncertainties. They may not be able to reap the expected returns and rely on recruiting new members to reap the benefits, but the process is subject to instability and sustainability risks.
2.Legitimacy and morality:
Insurance is a legally compliant financial service that operates under strict supervision by regulators. Insurance companies follow regulations and ethical guidelines to provide legitimate products and services.
MLMs often involve illegal operations and fraud. The process of recruiting new members is often based on a pyramidal structure, which makes it difficult for the lower members to be rewarded. MLM is often cracked down on by regulators and is considered an unethical business practice.
3.Economic Sustainability:
Insurance companies maintain their economic sustainability through premium income and investment portfolios. Premium income is used for compensation and operating costs, while a portfolio can generate additional income for an insurance company.
MLMs often rely on constantly recruiting new members to maintain their economic sustainability. Due to the inherent risks and unsustainability of the model, MLM is often not sustainable for a long time, and it is difficult for the underlying members to achieve a sustainable income.
Summary:
Insurance is a legal, regulated financial service designed to provide risk transfer and protection to the insured. MLM is an illegal business model that makes a profit by recruiting downline members and selling products.