The disutility of risk explains why insurance is a valuable good in the marketplace. Considered from a purely mathematical viewpoint without reference to subjective value, an insurance policy would seem to present a poor deal, since the total payouts to policyholders of a given company are normally smaller than their total premiums, at least after interest is taken into consideration. From the individual buyer's standpoint, however, insurance minimizes risk. On his or her value scale, the disutility of the avoided risk exceeds the cost of the insurance (that is, its premium plus the earnings the premium might have provided if invested). In addition, insurance transfers risk away from those who can least afford it to those for whom that risk has less disutility in monetary terms. In the free market, insurance premiums are similar to the prices of other goods. They tend to approach both of the following:

The marginal utility of the insurance to consumers—that is, the marginal disutility of the avoided risk; and
Its expected total marginal costs to sellers (including both positive and negative interest effects ), plus a compensation for the risk to sellers as noted below.