Lux - Illumination

How Are Insurance Companies Able to Provide Coverage for So Many People?

Your individual medical insurance company provides insurance coverage to so many people - how are they able to do this?

Insurance companies estimate the projected overall health care expenses that could be expected over the life of the policy (with lots of data they have), and balancing that against money paid into the plan (monthly premiums). Other costs could be associated with this calculation, such as administrative costs of running the plan, but covered health care costs are generally the most significant. Insurance companies then balance this risk across a large number of people, so that even if the insurance company pays out more money than they take in from a certain number of individuals, other individuals that have paid into the policy cover this shortfall and still allow the insurance company to make a profit.

So whether you have accident insurance or vision insurance, you can bet that your insurance company pretty much knows how much they can afford to pay for coverage, as well as what they must charge to continue making a profit.