BUISENESS MANAGEMENT
INSURANCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Insurance companies make profits by collecting enough premiums to cover all customers’ claims.
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Insurance companies only make profits if customers don’t make any claims.
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Insurance companies make profits by charging premiums and investing those funds.
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Insurance company profits are a result of tax benefits.
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Detailed explanation-1: -Most insurance companies generate revenue in two ways: Charging premiums in exchange for insurance coverage, then reinvesting those premiums into other interest-generating assets. Like all private businesses, insurance companies try to market effectively and minimize administrative costs.
Detailed explanation-2: -So that underwriting income and investment income are the main sources of profits in insurance companies. Insurance companies provide insurance by collecting premiums from policyholders and indemnifying those policyholders for covered losses that they suffered during the policy period.
Detailed explanation-3: -The profits from operating activities can be calculated as the difference between premium income and the total cost of operations, whereas the profit from financial activities is calculated as the difference between actual returns on investment and the returns credited to the policies.
Detailed explanation-4: -VNB margin indicates the profit margin of Life Insurance Company. VBN margin is calculated by dividing the Value of New Business by Annualized Premium Equivalent (Regular Premium +10% of Single Premium).