Archive for September, 2009
How Insurance Companies Operate?
The income of insurance companies comes from the earnings of the investments that they make with the money that has been paid to them by insurance holders. These investments include home mortgages, farm mortgages, land mortgages, government bonds, business securities, and real estate. To safeguard the company to massive loss upon occurrence of catastrophes such as a natural disaster hitting a huge part of the city, risks are said to be “reinsured” to other insurance companies to promulgate any potential cause of failure.
There are many insurance companies that comply under state laws which require them to set aside a part of their income as policy, legal, or reserve. This fund that has been set aside added to the earnings of the investments made can be considered sufficient for future obligations.
Businesses that deal with insurance are generally divided into two types and these are mutual and stock. A mutual insurance company is owned and controlled by its policyholders while a stock insurance company is owned and managed by stockholders who share among each other the profits of the business. A combination of the two types also exists and it is called a mixed insurance company.
Most insurance policies are sold off by insurance agents or brokers. The difference between the two is that insurance agents work for the insurance company similar to a saleslady working in a department store while insurance brokers represent the prospective buyers. Agents and brokers need to undergo training and evaluation before they can perform the duties that are bestowed upon them.