How Does an Insurance Company Work?
“This is John Pinelli, financial representative, talking to you today about how an insurance company works. So how does an insurance company work? Basically what an insurance company does is they take a ton of people, pool them together, have those people pay a small amount of premiums and then when the insurance company has a few claims they pay out those claims from the premiums they receive. Now the way an insurance company makes a profit is collecting more premiums than what they pay out in claims. This is sort of a simple concept and many people sort of have a negative view of insurance companies because they are making money because their people think that if they were to just save this money and not spend money on insurance they would benefit from that when this is simply not the case. Think of it like this, if you have 100 people and you pool them together now two people of those 100 need claims. This is a small percentage, 2% have a claim. Now without the insurance company, th
