How do Insurance companies make profits?

Answer 1

Agent sells policy to client. Client pays annual premiums. Company pays agent commission once or twice off the same policy. Clients rarely change their insurance company for another one.

Also, insurance companies put fees into the policy, usually around $100 to $200.

Answer 2

Each Insurance company employers a staff of "Actuaries" these are folks that crunch the numbers, and suppose the future of claims. Example- we I am an insurance company and collect 4billion in premiums in 2006, and total claims are 3 billion, and administrative costs are 10million, the remainder will be profit. The job of the actuary is to presume the future, a fortune teller who makes sure that every plan is profitable.
Here is another example that I think will help:
HMO plans are pre-paid plans, the premiums are high because the client is paying for services if they go in or not. A completely opposite plan to this would be a HSA plan, which is a high deductible plan- if you don't use the plan and are healthy you don't pay out, if you do you will have to pay out a high deductible. Hence you keep "your" money, and don't give it to insurance companies to profit by.

Learn more at www.HSAInside.com

Answer 3

Like previously noted, insurance companies do invest the money they obtain from the premiums you pay. If you never file a claim with your insurance, all of the money you pay them each month ends up being profit. People often feel that insurance companies are fraudulent. But, working for one, I have a good perspective on what insurance does for a person. Imagine if you bought a house and had a $200,000 mortgage that came with it. Then, two months after you move in you have a house fire and everything is lost. Home, personal property, all of it. In those few months you probably would pay about $150 for Home Owners insurance. With your claim, you get the money to pay off your mortgage and replace ALL of your lost belongings. Everyone benefits from being insured. Even if you never need it. You know it's there if the worst happens.

Answer 4

Insurance companies actually take a loss on the premiums to claim payout ratio. They actually make there money by investing your payment in a high risk stock. This is called floating. They can only do this for 30 days and they have to apply your premium to their books, but in the mean time the get the profit from the stock they used. That is why some insurance companies try to get you to pay in full. It gives them a higher return and they can the float the money longer. This is were they really rake in the money.

Answer 5

They invest the money they collect in premiums. If the premiums exactly equal the claims then the gain on invested premiums is the profit remembering that the time between collecting premiums and paying claims may be many months or years.

Read Warren Buffet's annual letter to Berkshire shareholders. He does a great job of explaining this.

Answer 6

we do not. I care a lot less about their salary than any debt they reason to my kin. As i have taken a time off at present to run through 2 years of expenditures for breast maximum cancers that my spouse had...properly, i assumed the hospitals and medical doctors were over billing us, and they could be, yet as i'm searching at paid claims i'm determining that even even with the undeniable fact that we've met all appropriate deductibles and limitations with our insurer we are being billed - about $12,000 and nevertheless counting - for facilities that our insurer UNDERPAID. Even when we paid our 10-20% they nevertheless UNDERPAID. they did not pay the medical doctors and hospitals in comprehensive and companies got here after us. in accordance to our coverage after $20,000 in holding with 3 hundred and sixty 5 days, in holding with human being in facilities we do not owe any more desirable, no co-pays, no deductibles, no longer something. properly, the spouse had 2 surgical procedures very last 3 hundred and sixty 5 days and a pair of this 3 hundred and sixty 5 days and they were throughout that volume respectively. So, for more desirable or less a 18 months i have been paying a bill because they determined now to not pay our companies the comprehensive quantity. Screw their so-noted as salary. and that i guess this so-noted as anemic earnings margin would not even consider the quantity of funds they hoard. they're required through states to save a particular quantity to be plausible and assure they could pay claims. properly, my insurer has 6 BILLION over that volume. definite, BILLION. funds they could be utilising to pay claims! Screw their earnings.

Answer 7

It's a beautiful exercise in statistics. People pay regularly for insurance, (monthly, semi-annually, annually), and many of them never make a claim on their policy. The more people you can convince to have insurance, then the more money you make, because again, odds are you will never pay a claim.

Answer 8

Mostly by investing your premium dollars, and keeping the money it makes.

That's why, when the stock market went down, your insurance premiums generally went up.

Answer 9

By charging customers for their policies. When companies pay out in accidents, they recoup their costs by all the money they collect from their many policyholders.

Answer 10

they try to write good risks, meaning policies and people that are less likely to have a claim