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Financial Operations of Insurance

Question 5 • (AG Q4) Financial Literacy: 25-26 (JRush)

Briefly describe three ways insurance companies ensure profits.

Answer

Correct Answer:

Insurance companies ensure profits in several ways. First, they carefully underwrite policies so they charge premiums that match the level of risk. Second, they invest the premiums they collect, earning additional income before claims are paid. Third, they manage claims and operating expenses efficiently so payouts and administrative costs stay below the money they bring in.