Adverse selection: people with higher-than-average risk are more likely to seek insurance, or more of it. The sicker you are, the more coverage you want. Insurers protect themselves through underwriting: limiting the amount of coverage, charging a higher premium, or declining the applicant. Policy provisions such as the suicide exclusion (usually the first two policy years) also help.

Law of large numbers: the more similar exposure units in a group, the closer actual losses come to expected losses. Mortality, the frequency of death in a group, is predictable for large groups. That is why an insurer can promise a fixed death benefit.

Reinsurance: an insurer (the primary or ceding company) transfers part of its own risk to another insurer, so that a single large loss does not threaten it.