Distinguish between defined-benefit and defined-contribution pension plans?

Question

1. Distinguish between defined-benefit and defined-contribution pension plans

2. How are insurance companies able to predict their losses from claims accurately enough to let them price their policies such that they will make a profit?

Answer 1

1. Defined benefit means you get a defined benefit--it would be something like 2.5% for each year you work. So when you get to 60 you get 50% of your salary if you worked 20 years.

Defined contribution is when you put in 10% (for example) of your salary and when you retire you get what is there.

2. Computers and very smart people figure out the risks and costs. The people are called actuaries.