I’m probably just stupid 😭
In: 4901
There are these people who LOVE numbers, they are called Actuaries.
Insurance companies hire these people to figure out all sorts of Probabilities, or the chance something will happen, based on things they can measure, like age and sex and weight and health and smoking and location and distance to fire hydrants and number of speeding tickets and credit rating.
Then the insurance companies ask these Actuaries something like “how many males aged 35 now, who are in decent health and don’t smoke do you think will die on the next 10 years? To which these number lovers will say 1 in 20.
The insurance company them makes a Life Insurance Policy and says for $4800 over the next 10 years, I will pay you $500,000 if you die. It then tries to get lots and lots of people to sign up for them. Once enough people do, and if their Actuaries are good at their jobs, they will make $960k from every 20 policies on 35 yr old men in decent shape that don’t smoke. And payout $500k to the 1 person that dies.
With the remaining money they pay the actuary, they pay for advertising, they pay the agent that sold you the policy and for the buildings etc. finally if they made a profit they pay the shareholders.
Insurance at its core is just the spreading of risk over a large group of people.
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