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How do life insurance companies make money?


Aditi Chandrasekhar

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 In this uncertain world, one can't be sure of anything. Changes have become an essential part of this new world. Future will be good or not, that cannot be determined. Same is the case with life. No one has the power to predict how long a person is going to live. Hence, to be aware and protect yourself from the contingencies of the future is essential. For this purpose, people get their life insured by different insurance companies.

         Life insurance companies have different policies for the safety of people. People can take any plan according to their preferences. Having life insurance is advisable and helpful for the uncertain future.

Life insurance companies make money through:  

  • More commission to the agents - the commission is the share of the amount of total amount of policy taken by different people after getting convinced by the insurance agents. If the rate of commission will be increased, agents will make more effort and hard work to convince more and more people and convert them into clients.

  • Better advertisements- Advertisements are done to increase clients or indirectly to aware more and more people about the company's policies. Once people know about the company, then they will take policies of that company. Advertisements also create a basis for sale of companies’ plans.

  • Through insurance premium - premium is the amount of money that people pay to the insurance company for the plan taken by them, and in return, people get the amount of policy made by them in case of death or illness. The significant portion of companies’ income is from insurance premium.

  • Investment in securities – To gain something from the funds collected through premium amounts, it is invested in different securities like equity shares, preference shares, debentures, etc. Share market is considered as the significant investment sector, and interest earned acts as a good source of income.

  • Term insurance gets expired before the client does - Term insurance refers to the type of insurance service which is provided to people for a definite period. The client decides the time, and he has to pay a premium on a monthly basis till the expiry. If the term of insurance expires before the death of the person, it will be an income for the company.

                  For any company, adequate funds are required for survival and growth. Hence, it is essential to generate a sufficient amount of funds from different sources. On the other hand, the insurance company provides security to a lot of families and any person can die peacefully without worrying about his/her family's condition in the future.

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