What is an actuarially fair insurance policy?

A contract in which an individual or entity receives financial protection in the form of a policy against an asset is known as insurance. Difference types of insurance are life insurance, health insurance, car insurance, etc.

In health insurance, a few persons are at higher risk due to bad behaviors or hereditary abnormalities, while in property insurance, a few regions have a greater risk of theft and fire, and some drivers are safer than others.

The insurance firm will categorize risk groups based on the likelihood of negative consequences from events that occur and do not occur and will charge lower premiums for lower-risk locations or persons and higher premiums for higher-risk areas or people. When the expected net payoff from an insurance is zero, it is said to actuarially fair.