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
They make the money by statistics. They have proffesional statisticians called “actuaries” calculating the chances that you will get into an incident in which they would have to pay out. The more likely they are to pay out the more they ask the individual to pay a month. The majority of insured people never need to use it or only use under what they pay over a lifetime.
Edit:
Think of it like gambling. They’re essentially saying “I bet you 1 million dollars that you will use less than x dollars over your entire life for these incidents. If I win I get to keep that x amount of dollars you pay over your lifetime. If you win I pay up to that 1 million dollars.”
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