Why do insurance companies charge different rates based on age, sex, marital status, where people live,

Why do insurance companies charge different rates based on age, sex, marital status, where people live, how much they drive, whether they smoke, driving record, etc?

Expert Solution

Insurance companies charge different rates on the basis of various factors like age, sex, marital status, where people live, how much they drive, whether they smoke, driving record, etc. because the different individual has different risk profile. The higher the risk, the higher rate an individual needs to pay in order to get insured against an adverse event. The higher the risk involved with an individual, the higher is the willingness to pay for an insured. Insurance companies charge on the basis of the willingness to pay for different individuals having different risk profile. This is an example of price discrimination. This helps the insurance company maximize profit.

Rahul Sunny answered 2 years ago

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