Among the several mysteries in the world that have bamboozled humans for years like the Bermuda triangle, lie some that are not as difficult to solve and yet confuse us humans still. For instance, unveiling how insurance agencies are able to pay their policy holders funds over and above what these people invest, has muddled many a mind. However, the answer to this question is not as difficult as it is to answer why the Bermuda Triangle behaves the way it does. Still, the answer is difficult to find.
How Does Insurance Work?
However, finding how insurance agencies do what they do comes only second to finding out what they actually do. Well, here is what they do. Insurance agencies give out policies to anyone that wishes to take one. People are willing to take these policies because policies cover their expenses in cases of certain unforeseen circumstances.
There are a number of different policies that you could take out for yourself that cater to different kinds of occurrences. Some of the most common types of insurance policies include:
- Fire Insurance
- Mobile Insurance
- Car Insurance
- Property Insurance
Among every different type of insurance you can find several packages and several smaller categories that cater to more and more specific instances. For instance, within health insurance you could find categories such as dog-bite insurance or slip and fall insurance and so on, each of which caters to a much narrower category.
Any type of insurance policy a car insurance, for instance(https://www.iselect.com.au/car/), requires you to deposit a small sum of money in a fixed period with the insurance agency. This sum accumulates over time and in case the instance that you are insured against occurs, you will get reimbursed for the sum. This reimbursement may even exceed the amount that you have saved in the first place.
How Does The Reimbursement Exceed Amount of Premiums
But, how does this even happen? How can the insurance agency pay you more than you have saved? They do not just pay you more than you saved. In case you do not ever get a chance to claim your policy, at the end of the maturity of the insurance policy, you will receive back a sum much greater than you invested over the years.
This happens because of the investment activity that every insurance agency will undertake from a portion of money that it receives in premiums over time. Why only a portion? Because there are other payments to be made out of the premiums that the insurance agency receives. These include the tax payments to the government by the agency, expenses incurred during operations, satisfying claims made on insurance during the course of operation and so on.
What remains after this is invested in a carefully selected portfolio of low-risk stocks. These stocks yield dividends over the years which are the profit for the investment agency. Now, since it was your funds that were invested in the stocks, you are given a portion of the profits earned from the investment and that is how your reimbursement exceeds what you saved through your premiums.
To read more on topics like this, check out the money category