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Insurance is being a knowing necessary that we all pay for to make sure we don’t end up with a massive amount of debts, if something tragic happens like our house burns down, or we crash our car. If something bad does happen someone else is going to pay for what it cost to fix it, this thought helps us maintain peace of mind.
The basic concept of insurance is that a company ensures offers a guarantee for a certain risk that may or may not occur. Then another party they ensured paid the insurance extend the protection against that risk when a bunch of people does the same thing for the same risk. Eventually, the insurance is getting a lot of income but the probability is that happening spread out the amount a bounce of people instead of about the same. Insurance companies make money by figuring out how much money daily to bring in return a profit on given a risk with a given probability. That calculation when influences how much each of the insured paid each month. It seems to be simple math but in actuality, insurance companies have highly complex models for all of this.
How Insurance Companies Work
Not every insurance company offers the same insurance. Most insurance companies will specialize in their own kind of insurance. Each company has to develop a complex model to ensure a guaranteed profit. If you estimated that one in one hundred houses burn down each year but it actually five in one hundred then you would be losing money pretty fast if you ensured those houses.
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