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Actually most insurance companies operate on a cost neutral basis (i.e., the premiums are designed to match the payout on average). They make money because the

Actually most insurance companies operate on a cost neutral basis (i.e., the premiums are designed to match the payout on average). They make money because they are allowed to invest the premiums (often with a lot of leverage). This is why Warren Buffet bought up so many insurance companies. It's essentially a free loan (probably made more sense in the 80's than it does now, but you get the idea ;-) ). So, I think the only cost you should account for is the cost of having to pay in the case of default.

muzmath 11y ago
Where did you get that information from? I spent 2 years of my professional life both designing insurance products for many of the major insurance companies, as well as filing for rate increase in almost all 50 states. What you said it blatantly false. What your talking about is called the Loss Ratio (or LR because actuaries love acronyms). Insurance companies shoot for long term loss ratios of around 0.6 i.e. for every dollar put in, they expect to pay out in the form of benefits 60 cents. Where are you getting your information from? Additionally, insurance companies have a lot of rules on how they invest their reserves, so these aren't going into high risk high reward baskets. Insurance companies have tons of overhead, from underwriting, advertisement etc.. which would completely dwarf what they make from interest alone.