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Nobody knows with certainty when he or she will die. Nevertheless, some actuaries are paid to make educated guesses about when people will die, Their employers then use those guesses to place bets on when people will, as they say, kick the bucket. Sounds quite macabre, doesn’t it?

Nonetheless, that’s what’s going on. When you buy life insurance you are betting that you will die young. The insurance company is betting that you won’t. That makes you sound like a supreme pessimist, doesn’t it?

If you live as long as or longer than the actuary thinks you’re going to live then the insurance company makes a profit, even after paying their administrative costs and salespeople’s commissions. If you die young, you would, were you not dead, have had the satisfaction of knowing that you beat the insurance company. Bully for you.

More generally, actuaries jobs are to estimate the risks that an insurance company will be taking on by selling someone an insurance policy. They then use that estimate to set the premium that will be required to make a profit on the policy. For life insurance policies, that involves considering traits such as current age, possibly the person’s existing health conditions, and life expectancies of people living in that geographic location, of that sex, and having those health conditions.

Other factors are taken into consideration for other types of insurance. For example, if you choose to live somewhere that experiences frequent flooding you can thank an actuary for the high premiums you will pay for insurance that covers flooding. Or you can blame yourself for being so utterly foolish as to choose to live somewhere that is subject to frequent flooding. Personally, I’d excuse the actuary on this one.

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