Eli5: How does insurance work ? How is it a good deal for both the customer and the company ?
In: Economics
Insurance companies spread the risk of claims across their clients, and do a lot of math to predict outcomes.
Imagine an insurer who has 100 clients. Each client has some asset worth $100, and the insurer can very accurately predict that during a given period they’ll have to replace 1 of those items. All they have to do is charge each client more than $1 for the period.
(obviously this example ignores the insurers overhead, etc.)
Additionally, in practice, insurers take all the premiums and invest them so their big pile of money is making its own money.
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