Household Finance
What is insurance and how does it work?
What a year you had! You broke your leg right before your beach vacation (which you had to cancel), your sore tooth needed a crown, and your fender bender necessitated major car repairs. Luckily you had medical, dental, auto, and even trip insurance. The money you received in insurance claims was more than the total you paid in premiums this year. That’s good, right?
If every person had a bad year like this, how would insurance companies stay in business? Insurance companies have to make sure the claims they pay out in total are covered by the premiums they collect from all their policyholders. This balance of premiums versus payouts is how insurance works.
