Eli5: How does insurance work ? How is it a good deal for both the customer and the company ?
In: Economics
Let’s take car insurance as a simple example
100 people have cars. They all pay $50 car insurance (we all wish it was that low). That is $5000 in the pot. Most people won’t claim, but maybe a few do and the insurance company pays their claims and the insurance company keeps the rest for their expenses and profits
The people paying the premiums get peace of mind that they won’t get big bills. The people who claim get their claims handled. The insurance company has enough money to pay staff and have a bit of profits over.
The ‘trick’ is to get the figure for the premiums right so everyone is happy. The company has experts and computers to do this.
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