How can an insurance company make a profit by taking in premiums and making payouts? The value of the premiums the company takes

Question

3 years ago

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How can an insurance company make a profit by taking in premiums and making payouts? The value of the premiums the company takes

in is higher than the value of the payouts it makes. The value of the premiums the company takes in is equal to the value of the payouts it makes. The company only makes payouts from a pool of funds, not from individual premiums. The company issues its policies to individuals who are unlikely to require payouts.

Mathematics

2 answers:

yarga [219] · Answer 1 · 2022-03-31T14:00:38+03:00

Alot of the time insurence companies get discounts with whomever is fixing the item or person. For example- for medical insurence alot of the major insurence companies have agreements with drug companies in order to lower the payment for the company.

Another thing is they pick people who are unlikly to call and disput a claim or have problems in general.

marin [14] · Answer 2 · 2022-03-31T16:20:33+03:00

Answer:

An insurance make a profit by:

The value of the premiums the company takes in is higher than the value of the payouts it makes.

Step-by-step explanation:

Insurance companies earn profit from short-term investment of the premium money they collect as premiums but the payout or claims of services are made are paid several months later ways.

Insurance companies realize profits by setting premium levels that are higher than might be necessary.

Hence, the correct answer is:

The value of the premiums the company takes in is higher than the value of the payouts it makes.