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?

1 Answer

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  • Tim M
    Lv 4
    1 decade ago
    Favorite 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.

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