How do insuarance companies make profit?
Yesterday i was shoping for an education policy for my daughter and i aproched one local insuarance company.i asked for asum assuared of 50000 over 5 years term.
i was told i will be paying sh 1481 every month for 5 years.that will be my total investement. in return i will paid as follows.
(a)5000 at the end of the each 5 years
(b) on maturity of the policy i will be paid my total investment plus 7.5%x50000x5.
When i looked at the above sum it looks this guys are paying me more than i invested . What profit are they gaining from me?
assum they get one billion customers like me will the company not run bankrupt or is there something i dont know?
- Tim MLv 41 decade agoFavorite Answer
They're making the money by investing your money in the interim. While typical savings accounts only get a few percentage points, the stock market, on average, gets 11% per year. A "good" investor can do even better.