The amount collected is higher than the amount paid out in the event of a claim. For extra income the insurance company can put it into premium payments. This topic is covered further in detail in the following video. It’s worth watching! Two of the main methods by which insurance companies generate revenue.
1. The Float
The float is the cash value of policies which are written, but have not yet been paid as claims. The length of time between when the policy is transferred and when it can be made payable is known as the term. The longer the time period longer, the greater the amount of floating rate for the firm. Insurance policies typically have one-year terms. Some life insurance policies come with terms of 20-years or longer. Insurance companies earn interest from this money as they store it prior to paying claims.
Insurance companies also get profits on the insurance premiums they have in the float. They can earn profits through investing their funds in security like stocks, bonds, mortgages and real property investments like commercial structures or shopping malls. Contact home for more details.