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
10 million people pay me $1 a year to buy them a replacement ice cream if they drop their ice cream, which costs them $2 to buy.
990,000 don’t drop it in any given year.
This means that I make $9 million 980 thousand a year, even though I am on the hook for the *risk* that I might have to theoretically pay $20 million (which ends up being a net $10 million loss) if everyone drops it.
Because the risk is low, I can make a profit while still taking care of the 10 thousand people who dropped their cones.
Insurance is about peace of mind. You are paying them for the peace of mind that if something happens to your property/life/etc. that you won’t have to worry about paying to replace the object/fix the problem. Because enough people are generally not going to have that problem (statistically speaking, remember it’s all about risk) they can still make money while meeting their obligations to the insured.
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