The following is my
answer to a Quora question: “How can life insurance pay out more
than the person has put in?”
From an individual perspective, the insurer has paid
out more than the premium if the claim was early. From the insurer’s perspective, they have paid
out one claim for a single policy, but have earned from tens, even hundreds, of
thousands of other policies that are still premium paying. This is the benefit of portfolio costing. Also, when insurers take in all that premium
from their policyholders, they invest it out for further returns so that in the
event of a spike in claims, the insurer is not financially compromised.
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