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How do life insurance companies make money

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    ASK How do life insurance companies make money

    I was wondering how insurance companies make money. I latter realised that insurance can make lot of money from underwriting income. For example, Insurer A collects $5,000,000 in premiums for polices issued or renewed in a given year. That is why insurance companies invest the premiums in stocks, bonds, and other interest-bearing accounts

    Insurance is about sharing risk. It’s a form of security that’s based on cooperation. By distributing the risk of a catastrophe among a group of people, insurance offers a low-cost approach to providing financial security against unforeseen and, quite often, financially devastating events. To earn revenue insurance companies calculate the risk on each policy and set the premium accordingly. The difference between the premiums collected and the money paid out in insurance claims is known as underwriting income. To generate revenue, insurance companies will invest a portion of the small amount of money earned from annual premiums. By taking this money and putting it in low-risk investments, insurance companies can earn additional profits, which help improve their balance sheets and bottom line.


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