Ruin theory

Ruin theory is a way of predicting the cost of setting up an insurance plan. Insurance plans help us to protect our money if something bad happens. Usually, insurance companies will offer insurance plans and charge us a certain amount of money each year for the plan. Ruin theory helps insurance companies predict how much money they will need to set aside to be able to pay for everyone's claims. It is called ruin theory because it helps to stop insurance companies from 'ruining' their business by not having enough money set aside to pay out claims. Ruin theory looks at how likely it is that a lot of people will be making claims all at once, which could cause the insurance company to run out of money. By predicting how much money they will need, insurance companies can make sure they will have enough money to pay out all claims, and not go bankrupt.