HOW DO FINANCIAL INSTITUTIONS MAKE PROFIT.?

I dictated to find out how Iinsurance firms, banks, mortage institutions etc have outrageous distinction from the income people in the village deposit in to their care.Take word association for example, it receives income from those who wish to protection their skill or life. In destiny time, they payback this income in suitability with the process done in between both parties. How were they means to have distinction upon this income as well as even paid salaries of associate employees . I goal to get the most appropriate of the most appropriate advice.

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{ 2 comments }

Swamy July 20, 2011 at 11:24 pm

They in turn invest the money in approved investments and out of the interest or dividend, pay a small portion as bonus to the policy holder. All expenses are to be covered from the returns only.

Frank Castle July 20, 2011 at 11:32 pm

Example 1:
You live in OnlyHonestPeopleVille and there are 100 cars and each year 2 of them crash with each other and one of the drivers dies.

The cheapest car is worth $100.00 USD and the most expensive car is worh $10,000.00 USD.

This means the insurance company could lose at least $200.00 in a year or up to $20,000.00 USD in a year.

They charge $200.00 to everybody every year (Total $20,000.00 every year)

Several things can happen:
2 $10,000.00 cars crash and they make $0.00
THIS IS THE ONLY CASE WHERE THE INSURANCE COMPANY DOES NOT MAKE ANY MONEY.

In the rest of the cases they always make money.

Now about the life insurance.
They pay $5,000.00 USD if you die in a crash.

There are 100 customers and they charge $50.00 to each one of them.

If one dies then they don’t make any money.
If nobody dies then they make $5,000.00 in a year.

There is also possible 2 people will die in the same year and that’s where the REINSURANCE COMPANIES COME IN.

There is also possible 3 $10,000.00 cars crash with each other and that’s where the REINSURANCE COMPANIES COME IN.

I hope you understand.

If you need a more detailed answer then you can email me.

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