Q:

How do insurance companies make money?

A:

Quick Answer

Insurance companies make money in different ways, including revenue from premiums, interest-earning investments and insurance policies from other insurance companies, according to Autos.com. Life insurance and health insurance companies make money from other sources as well.

Continue Reading

Full Answer

Automobile insurance companies take money given to them for premiums and put them into short and long-term investment portfolios. Autos.com reveals that insurance companies lump premiums together to assemble large amounts of cash into a fund known as shared risk. This fund is what goes into investments for automobile insurance companies. Some car insurance companies also buy insurance policies from other insurers to secure their investments.

Life insurance companies make money in other ways, according to The Huffington Post. When an insured person passes away, life insurance companies pay out to the beneficiaries. However, it is estimated that less than 2 percent of life insurance policies are actually paid out. These companies make money when clients pay into life insurance policies but let them lapse before they die.

Health insurance companies have other streams of revenue. The New York Times reports that health insurance conglomerate Wellpoint made 93.2 percent of its revenue from premiums, while 6.3 percent came from fees in 2008. In total, Wellpoint brought in more than $61.5 billion that year, most of which came from premium income. Investopedia explains that premium income is made by customers who pay insurance premiums for products offered by the company.

Learn more about Insurance

Related Questions

Explore