What is an Insurance Company?
Insurance company run a kind of business that offers you coverage, in the form of monetary compensation for the loss occurred to you over the parameter that was insured. They sell insurance to a person either directly or through some sources like employee benefit plans. They may be specific about the insurances they offer, like health insurance, life insurance or car insurance and other types of insurances. They may also provide multiple of insurances.
How do they Make Money?
- They charge you with premiums that cover the expected total payoff cost at the time of your claim.
- The period between collecting the premiums and payment of claims, is spent by the insurance companies on investing the premiums to generate returns. This time period is termed as FLOAT.
Types of Insurance Companies
- Domestic Insurance company - Incorporated in the state within which it exists.
- Foreign Insurance company - Incorporated under the laws of a foreign nation.
- Mutual Insurance company - owned entirely by policyholders, the profit gained is redistributed to all the policyholders in the form of dividends or reduced premiums.
- Stock Insurance company - owned by shareholders, the profit is distributed as dividends to them.
A self insurance concept is also possible, where a third part insurance entity is not used. Here the losses are compensated by paying from the cash reserves of the individual. This is possible only with business or individuals with higher cash reserves.
Note: The Mutual Insurance Company is the best option for policy holders, as they distribute their profits back to the policyholder. Also the losses incurred are not charged back.
