The general principle is that utility doesn’t equal money, and you are interested in expected utility, not expected money. If, for example, you need $50000 for an operation that would save your life, then certainty of $40000 is much worse than 1% chance at $50000, which is only $500 in expected money, but more than certain $40000′s worth in expected utility. Insurance is a trade where both sides gain positive expected utility, even though the (expected) balance of money must necessarily be zero.
The general principle is that utility doesn’t equal money, and you are interested in expected utility, not expected money. If, for example, you need $50000 for an operation that would save your life, then certainty of $40000 is much worse than 1% chance at $50000, which is only $500 in expected money, but more than certain $40000′s worth in expected utility. Insurance is a trade where both sides gain positive expected utility, even though the (expected) balance of money must necessarily be zero.