My cousin and I are going to try to start a business so we needed insurance. The insurance is a 160 something dollars a month and covers 2 1,000,000 dollars accidents. Where do they make there money?
In: Economics
Every month you pay 10, I pay 10, my dog pays 10. One year later, I have a 100,- accident and our insurance covers it.
They received 3 x 10 x 12 = 360,- that year.
They paid 100,- that year.
They keep 260,- that year.
Their challenge is to balance the payouts with attractive pricing and profit.
And yes, that would mean that if everyone had an accident at the same time, they would be in trouble (were they not insured themselves), but that’s not how the odds are stacked: most people most of the time do not have accidents.
> why would I pay their profits!
Because for you to save and never use an emergency fund of 100.000,- for a medical emergency, for example, you’d be dead before having saved it. Instead, you insure yourself for 100,- a month, and together with all the other customers you spread that risk and financial load among yourselves so everyone is safe when push comes to shove — again, which for most people most of the times won’t be necessary.
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