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?

Question

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

Answer 1

It’s more about shared cost. If 15 people buy it and only 2 people end up needing the insurance to pay out, the company makes the profit of 15 premiums – 2 claims (very rough math). The profit on their end is based on the idea that (1) more people will buy it than will need payouts each year and (2) everyone won’t need payouts at the same time.