Eli5: How does insurance work ? How is it a good deal for both the customer and the company ?
In: Economics
The insurance company makes a profit because of course the payouts are less than the revenue. The customers on the other hand get to externalize risks that are too costly for them to deal with should they materialize. If your house burns down can you simply pull the money for a new one out of your back pocket? Most people can’t. So insurance is the way to deal with that risk and not end up on the street if the house does in fact burn down.
Where insurance doesn’t make sense is for risks that you can cover easily with your own means. A billionaire would have little use for typical consumer insurance services.
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