Under a normal distribution, a move of five standard deviations should happen about once every 3.5 million observations, or roughly once in 14,000 years of trading days. Equity indices have produced several such days in the last century alone.
The assumption is still used because it makes maths tractable: variance adds, sums stay normal, and option pricing has a closed form. Treat it as a first approximation with a known failure mode rather than a description of reality.
For anything that depends on the tail, position sizing through a crash, risk-of-ruin, or stop placement in a gap-prone name, replace the assumption with resampled history or an explicitly fat-tailed model.