Five Ways Insurers Make Money
As an insurer, you hold many of the same assets as a commercial bank, but they are financed by contingent liabilities. These liabilities become current or terminated upon a pre-specified event. The timing of these events is often uncertain when the insurance contract is signed, which is why insurance is written against so many contingencies. Here are five common ways that insurers make money. One way is by offering subscription services, where you pay for a product or service periodically.
A mutual insurance company is owned by its policyholders, and the policyholders can vote on the board of directors. This type of insurance company is managed by its shareholders, and the assets are held for the benefit of policyholders and beneficiaries. It is important to note that the dividends paid by these companies are not guaranteed, but some insurance companies have managed to pay dividends during tough times. They are also regulated by the government. To stay in business, insurance companies must be financially stable.
In addition to insurance companies, individuals can buy insurance from agents. Free agents and tied agents work for different insurance companies, and the two have different conflict of interest. Agents work directly for the insurance companies, and may advise you to take a policy that will benefit the insurance company, but they are limited in their selection. While these agencies are able to sell you different types of insurance, they are not as broad in selection as a broker. The insurance companies are always interested in keeping their clients happy.
Life insurers sell policies to protect the lives of their customers. The benefits are paid to beneficiaries upon death. They offer two types of policies: term and permanent insurance. The former costs less but expire after a specified term, while permanent insurance lasts a lifetime and accumulates cash value. Some insurers also sell long-term disability policies, which replace the insured’s income should the insured become disabled. Prudential and Northwestern Mutual are two well-known life insurers.
A claim is an alleged or real claim. It is filed against an insurance company when a property is damaged. In most cases, the claimant can file the claim directly with the insurance company or through an insurance broker. However, the insurer may require that the claim be filed on their proprietary forms. Some insurers have their own forms for filing claims, but some accept industry-standard forms. Whether you file a claim is important, as the insurance company will handle it with professionalism and care.
Insurance companies tend to get the most attention. They spend millions of dollars on advertising campaigns and use their mascots to endear consumers to their brand. In the process, insurance companies often try to persuade consumers to purchase more coverage. But these mascots often have limited benefits. In other words, they’re not necessarily more valuable. If you’re looking for a good insurance company, choose one that focuses on a particular type of risk.