Eli5: If an insurance company is willing to sell you insurance, does that mean the insurance company is expecting to make profit and therefore you will make a loss and should not take up insurance?
In: Economics
No. They’re spreading the risk around among thousands of clients. They expect they’ll lose money on some of their clients, but they’ll make a profit on enough of them to cancel out their losses.
Basically, if they’re selling life insurance, they know a few people will die before they’ve paid enough in dues to cancel out the payout the insurance company will pay to the surviving family, but *more* people will live long enough to pay more in dues than the payout would be if they had died.
That’s the point of insurance, it’s not an investment where the customer is trying to make money, the customer is merely trying to shield themselves from *risk*. Even if you “make a loss” (meaning you pay more in dues than you ever received in benefits/payouts), you still benefited from having the insurance, because part of what you were paying for was the peace of mind of not having to worry about a certain risk.
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