Final answer:
In an insurance system, the average benefits paid out will generally equal the average premiums paid, rather than each person receiving benefits exactly equal to their premiums. This allows for coverage of claims, administrative costs, and profits. An actuarially fair insurance policy sets premiums based on the risk level of different groups.
Step-by-step explanation:
In an insurance system, you would not typically expect each person to receive in benefits an amount exactly equal to what they pay in premiums. Instead, the fundamental principle of insurance is that the average benefits paid out will equal the average premiums paid by all policyholders. This balance is necessary to cover the average person's claims, administrative costs of running the company, and to provide for the firm's profits. In an actuarially fair insurance policy, premiums are set according to the risk level of different risk groups, acknowledging that some individuals have higher risks than others. Charges based on risk groups help maintain fairness and ensure the sustainability of the insurance system. However, if an insurance company tries to charge a single actuarially fair premium to the entire group, without considering different risk levels, it is likely to face financial challenges as it may not collect enough premiums to cover the claims from higher risk individuals.