How can they pay out all of that money when someone dies when the payments towards the company haven't exceeded the payout to the customer? Can anyone explain where their profit comes from, thank you!
2007-03-31 08:09:16 · 13 answers · asked by Scott L 3 in Business & Finance ➔ Insurance
Most people keep a life insurance policy in force for about 5 years. Most people do NOT have life insurance in force when they die.
That gets factored into the rates.
Additionally, insurance companies keep HUGE piles of money off to the side, called reserves, that they are required to keep, to pay of claims for active policies. They INVEST these monies, and even NON life insurance companies usually make more money from investment income than from insurance premiums.
2007-03-31 11:18:47 · answer #1 · answered by Anonymous 7 · 0⤊ 1⤋
If an insurance company has 1000 people in it's customer base, the company knows that 1 person will die each year with a payout of $10000. With each person paying $25 per year for their rate payment. That is a $15,000 profit each year.
Add to the fact that $5,000 - each year! - of that is pure profit into the pocket of the person who sold the policy...
Fun fact: Insurance Companies have a bad habit of blackballing agents who cut their obscene commission.
As an example, I have a $5,000 policy that was purchased by my parents shortly after I was born...esentially a "burial policy," if you will. Of the $50 some dollars a year I pay, $20 is paid to the agent handling my account. The rest pays for the actual policy.
2007-03-31 08:23:39 · answer #2 · answered by jcurrieii 7 · 1⤊ 0⤋
Time value of money. They receive premiums (insurance payments) and invest the money.
Whole Life policies work like a savings account at a bank. The banks invest the money in your savings account at a higher rate of return than they pay you in interest. For whole life insurance, the interest you earn is even lower. If you stop making premium payments, the principal is still your money and is earning interest at a very low rate and the insurance company does not have to pay on the policy.
For term life insurance, many, many people don't continue paying premiums and their coverage lapses and the insurance company never has a payout.
2007-03-31 08:19:40 · answer #3 · answered by Rainman 5 · 2⤊ 0⤋
Many people let their policies lapse many years before they pass away - so there is no payout. Life insurance companies invest the premiums as well which gives them much more profit over time. You may want to try a website that compares multiple companies at once to get you the best price. I am paying less than ½ after I did. The policies start at around $2 per month.
Go to: http://www.insureme.com/landing.aspx?Refby=616164&Type=life
Take care,
Casey
2007-04-01 02:24:20 · answer #4 · answered by Anonymous · 0⤊ 0⤋
A certain number of people live longer than expected. That allows premium money to be invested on the market. That allows a fund to be in place to cover a certain number of pay-outs. It is a carefully calculated formula. Something major, like 9/11, throws the calculations out the window, and, indeed, some companies in existence before the disaster are bankrupt after paying the policies.
2007-03-31 16:20:17 · answer #5 · answered by Fred C 7 · 0⤊ 0⤋
Life insurance works on the premise that of the large premium payer life assured base, at any given point only a small number of claims will arise. Hence as the payout is finite measured by statistical empirical data, premuims are decided accordingly.
2007-03-31 20:28:58 · answer #6 · answered by Santosh 3 · 0⤊ 0⤋
evaluate unfastened expenditures from dif businesses at INSUREDEALS.records- RE How can existence coverage be worthwhile for coverage firms? How can very own existence coverage easily make a income for an insurer, whilst that's conventional that any insured individual will finally die? Is it via fact coverage firms provide up offering existence coverage conceal as quickly via fact the guy reaches a definite age, so almost all of deaths are no longer insurable?
2016-11-25 02:28:58 · answer #7 · answered by Anonymous · 0⤊ 0⤋
Actuaries figure out what they will need to charge people in order to make a profit.
Overall, insurance companies are charging customers much more than they pay out in claims. On an individual basis those of us who don't have claims are covering the costs of those who do.
2007-03-31 08:13:56 · answer #8 · answered by the Boss 7 · 1⤊ 0⤋
they know from statistical data, that most people will quit making payments before they have to pay out.
2007-03-31 08:11:50 · answer #9 · answered by TheAmberOtter 3 · 0⤊ 0⤋
many people pay in for decades and only have 1 claim
depending on death circumstance, some can be denied the money
2007-03-31 08:12:24 · answer #10 · answered by Anonymous · 0⤊ 1⤋