Most of us need insurance of at least one sort or another. We need insurance for our cars, our homes, and in some cases, literally for our lives. The insurance industry is a profitable one, largely based on knowing the statistical likelihoods of events that will result in insurers having to pay various claims. Statistical likelihoods work very well if there are large numbers to work with. No insurer can tell you if you’ll get in a car accident this year, but if they insure say 500,000 vehicles they can make a very accurate estimate as to how many of those vehicles will be involved in an accident, and how much it will cost them in claims. With reliable statistical likelihoods, they can use that data to their advantage by setting premium rates to significantly exceed likely payouts.
In the case of life insurance (and annuities) it’s a matter of predicting when you will die, based again on statistical likelihoods. In the case of estimating longevity, the practice of calculating and applying statistical likelihood, is called actuarial science.
So, the insurance industry needs lots of customers to make those statistics work. There are lots of companies competing for those potential customers. The industry relies on some aggressive sales practices, and arguably some dubious products. Let’s have a look at some of the ways this industry works.
Take a look at some of the ways we make a lot of money: