How Do Life Insurance Companies Make Money?
1805 POINTSview profileSamuel SmithEnrolled Agent-licensed to practice before the IRS, Samuel N Smith, EA, South CarolinaLi"safe moneyfe insurance companies make money the same way your bank makes money. The insurance company uses actuaries to help them design their products to assure they are covering their costs plus sufficient profit. When you pay your monthly payment the insurance companies uses the services of an Investment manager to calculate their "short term liquidity needs" and then they invest the balance usually in bonds, especially for "safe money" companies that do not invests in stocks or other investments that carry a higher degree of riskAnswered on November 22, 2013flag this answer
10968 POINTSview profileTim WilhoitOwner, Your Friend 4 Life, Brentwood TNLife insurance make a profit by collecting more premiums than paying claims as a simple answer. This is why actuaries and underwriters design a premium per client to assess their mortality risk. If you look at overall claim stats only about 1% of term life policies pay a claim and approximately 20% of permanent life insurance pays a claim. Reason being most folks drop their coverage sometime during their lifetime.Answered on October 19, 2014flag this answer
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