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Insurance can be a very confusing topic for most people. We have already discussed various types of insurance in our previous topics and the benefits people gain in each kind of insurance policies. This article, on the other hand, will discuss how insurance companies make money as it is a commonly asked question and most people fail to find an appropriate answer to this question.
While the discussion can be as complex as we want it to be, the simple answer to this mysterious question can be very straightforward. Basically, the income source of these companies can be divided into two categories. Both these categories are discussed below.

1: Premium charged:
It is comparatively simpler to understand this source of money. Everybody knows that insurance companies charge a periodic (usually monthly) premium for every kind of service they offer or provide. However, at its depth it can still be very complex. Companies don’t make premium policies out of blue. In an ideal situation, an insurance company would try to price its premium in a way that the total annual amount gathered in terms of premium is equal to total claims paid plus all the expenses incurred in the year. Such a pricing can be very difficult to set. A lot of statistical and analytical tools are used for this purpose and budgets are made accordingly. At the same time, targets are set for each division or office and that is why you would also see insurance agents always trying to persuade you into buying their policies. All these agents have insurance targets which they need to meet.

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