Some businesses are hidden for the common people in such a way that they do not understand what had happened to their money which they paid and how is this company earning? These questions are very common related to the companies which do pure finance related business so no one can understand it without the basic knowledge of finance.
Myths related to investments of premium money:
A lot of people ask questions that where do insurance companies invest their money? This is a very interesting question to them and they ask it often because they really have no idea about it. There are certain myths about the insurance business in which people talk about that where does their premium money goes. Many people answer these questions but a very rare can tell you the right answer. Most of the people say that the premium money paid by the customers is used to pay the claims which are already filled by the other customers. But this answer is not true.
Others say that the money of premiums is just placed in a bank until the customers claim for payment. This is also not true related to the investment of premium money. You should know that the money which you pay as a premium travels a very long distance and most of this money is used in the customer service. Now it is important to invest this money by the insurance companies.
Reserved money is the money which is saved by these insurance companies in order to face any sudden situation. This situation can be any natural disaster which can cause a lot of people to claim their money from the insurance company. No company can pay their customers in such a sudden situation without saving so the reserved money is used in this purpose. The most important purpose of insurance money is obviously to give it back to the customers in state of need.
Most of the companies use this reserved money to invest in different businesses so that they will get some extra output in the form of profit from these investments. This reserved money is kept by a lot of insurance companies and it is separated at the beginning of investment.
Paying the salaries and daily expenses:
Insurance companies have to run office so they will have to pay a lot of bills including the salaries of their employees and sales persons. These salaries are also taken from the insurance money.
Use of reserved money and premium:
Reserved money is used in a lot of situations like when the company faces drastic time and it will not be able to stay anymore. The insurance companies have maintained to keep the mount of premium so that it is easy for everyone to get insurance for himself or herself. The premium is mostly invested in businesses in order to get some profit and benefit. This profit will then help to run the money and get new customers by providing good care to the existing customers.