Actuaries at insurance companies calculate the pure cost of the risk—what it actually costs to cover mortality.
To explain how it works, here’s an oversimplified analogy:
Say we have 1,000 healthy 30-year-olds, and mortality data says 2 of them will pass away this year. If each person throws $2 into a hat, there’s $2,000 total—enough to pay $1,000 each to the two beneficiaries.
That $2 is the pure mortality cost for $1,000 of coverage. This is the core concept behind life insurance pricing—just simple math based on probability.
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