How do insurance companies profit?
In: 2
They charge more for policies than they pay out in claims.
Insurance companies have teams of number crunchers called actuaries who determine what they need to charge for insurance policies based on various factors. For example, with car insurance they look at the driver’s age, gender, address, marital status, vehicle use, past driving record, along with type of car, cost of car, cost to repair the car, etc. to determine cost for auto coverage.
in the past, similar questions typically ask about life insurance… the answer there is that most life insurance sold is term life insurance, which covers for a specific period of time. So one might buy a 30-year policy when they buy a house with a 30-year mortgage, doing so at age 30 so it covers them from ages 30 to 60. Since most people don’t die during that time frame, the policies can be affordable since only like 5 or 10% of people die and the policy pays out.
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