How Insurance Company Work

First, insurance companies are applying the law of large numbers. The philosophy, risk and uncertainty is getting smaller when the insured amount has increased. The greater the number of people who enter the life insurance program, the accuracy of the estimates of possible insurance losses are increasingly easy to do. In these conditions, insurance companies are able to anticipate an insurance claim in the future more accurately. The bigger the group, the insured losses will be experienced by such groups is easier to predict.

For example, an insurance company will face great risks when it had to close for one insurance coverage totaling to $ 10.000 for one year. When the number of people insured reaches 500 people, the level of uncertainty will decline despite the risk of emergence of Genesis died persists. If 500,000 insured in one group, the average death rate fluctuations would further decrease. Thus, life insurance companies are able to anticipate an insurance claim more accurately.

Second, the life insurance companies to calculate premiums on the basis of the results of the statistics in the table of level of mortality. This talk about mortality or death rates at each age level. Statistical tables notes that mortality is observed in previous time periods. From the results of observation, the insurance companies make an average figure as a benchmark for the creation of illustrations on life expectancy rate probability of each age group.

An example of ins company using mortality tables as the main element in calculating insurance premiums. In addition, the calculation is based on the amount of administrative expenses, distribution costs and interest rate assumptions. The magnitude of the non mortality element is dependent on the policy of each insurance company.

In General, a premium rate determination of each life insurance company refers to the four principles, namely :

      1.The insurance premium will be calculated by taking into consideration the magnitude of an   insured group. Principle of averages and probabilities can only run if applied on a fairly large group. The larger a group insured, calculation of the premiums is increasingly approaching the estimated results.

     2. Although it is unknown when and how each Member of the Group would have died later, the experience of the past quite well used as a guide for future estimates.

      3.  life insurance companies pay claims on life insurance policy that is derived from a set of results the contribution fund policyholders.

     4. Each participant contributes to the accumulation of funds in accordance with the higher level of risk.

People who are more will pay a premium rate is higher than those who are younger.

By knowing how to calculate premiums, we should realize that consciousness is active for very early stage determines the insured amount of the premium that we have to pay for. Financial risk management is a manifestation of our responsibilities to the family. How is cleverly moving the financial risk to an insurance company or car insurance companies to purchase an insurance product. This is to reduce the financial burden in the future due to the advent of misfortune/accident and uncertainty. Don't delay the decision for insured because of the influx of disaster could never suspected. Immediately contact the insurance company or insurance agent you know.