Eli5: How does insurance work ? How is it a good deal for both the customer and the company ?
In: Economics
Insurance companies collect premiums from customers. Over the course of time, some of those customers will need medical care, but most won’t. The ones who need it will get paid using the premiums of customers who didn’t need care. There are a couple of other complications here (like whether or not the insurance companies have cut deals with health care providers, or whether your employer is paying part of the premiums), but generally, people are paying more into insurance than they will get out it.
The point of insurance, for customers, is to protect yourself from financial hardship more than it is to get more money in the long run. If you get very sick, it can completely ruin your finances. So you’re paying a small amount regularly to avoid that possibility.
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