How does an insurance company earn money?

The business of insurance is age old. In earlier times it was normal for the business houses to go for insurance and then make a claim if an eventuality happens. Life insurance also became very common in due course and people opted for the life insurance policies and in fact they became so popular the everyone had some policy of some sort. The insurance companies came out with newer schemes where insurance not only cared after the accident or the eventuality but also took care when a person fell ill.

The basic premises behind the working of the insurance is like this. The insurance company has a historical data available with the researchers or qualified people as how many times an unfortunate thing happened. For example if ten thousand people opted for insurance how many of them died beforehand the policy matured. The percentage is not much and the claim is also less accordingly. Now the insurance company is taking premium from the people and getting a lot of money and out of that it might be using 2-3% for its own expenses and 20-25% towards claim. This makes the insurance company to keep the rest 70-75% in their kitty. So the law of averages works in this type of industry. The basic assumption is that an unfortunate thing would not happen and even if it happens the frequency would be less.

Some of the god companies in this area are -
(1) SBI Life Insurance.
(2) ICICI Prudential Life Insurance.
(3) HDFC Standard Life Insurance.
(4) Max Life Insurance.
(5) Reliance Nippon Life Insurance.
(6) TATA AIA Life Insurance.
(7) PNB Metlife India Insurance.
(8) Religare Health Insurance Company.

The insurance companies take the advantage of human weakness that they want to remain protected from the unexpected expenditures as a result of meeting with an accident or sudden notice of heart ailment or the situation demands the knee replacement therapy. Considering the prohibitive cost, it may even go sometimes beyond his pocket necessating a policy for the cover up the huge expenses by means of a suitable policy undertaken by the different companies having flouted different schemes covering partial/ full coverage of the expenses depending upon the policy undertaken by the consumers.
The follow the simple strategy where in substantial amount of money is collected from customers by way of the premium but the disbursement of money on different health ground would not exceed beyond 10 percent in a given year thereby making a huge profit. Here the psycological fearness of the insurer is responsible for the existence of the different insurance companies.
Some of the reputed companies operating in this area are as follows -
1) ICICI Prudential Life Insurance
2) SBI Life Insurance
3) MD India Health Insurance
4) Max Life Health Insurance
5) SBI Life Insurance
6) Religare Health Insurance Company
7) HDFC Standard Life Health Insurance etc.

The probability of eventuality is calculated in a systematic way by the professional. Based on that the premium amounts will be decided. There are special studies designed for this to know the probability. In general, this percentage will be very less and as per the available information, only 25% of the income to the insurance companies is going for disbursement of claims. The agent commission and other expenses may be up to 10%. The remaining amount is the excess money they have. That is why private insurance companies, as well as the government companies, are making good profits.

LIC is the age-old insurance company of government and you can opt for that. At the same time, all private insurance companies are also governed by the rules and regulations of the government. These days there are many private insurance companies. The list of some companies is given below.
1. Kotak life insurance company.
2. SBI life insurance
3. Max Life Health Insurance
4. ICICI Prudential Life Insurance.
5. HDFC Standard Life Insurance.
6. ICICI Prudential Life Insurance
7. Reliance Nippon Life Insurance.
8. TATA AIA Life Insurance.
9.PNB Metlife India Insurance.
10. Religare Health Insurance Company.

Insurance companies create money on their investment by taking risk of betting. All insurance companies regularly receive the premium from the customer (monthly, quarterly, or yearly). They take a survey on the average lifespan of the region. And take the risk that the insurer will not die before the time.

For example; if the average death life is 60 years and in 100 insured persons no one died before the 60 years then all the profits (Premiums) goes to insurance companies.

Another example:
The Group Gratuity Scheme: Most employers buy this insurance and pay a premium for Group Gratuity Scheme; If an employee leaves the job before the five years then the insurance company needs not to pay any Gratuity to him. And if an employee leaves service after five years then the gratuity needs to be paid by the insurance company.

Conclusion: All insurance companies making money by taking risks.

HDFC Prudential, ICICI Lombard, TATA AIG, LIC are good insurance companies.