How can an insurance company make a profit by taking in premiums and making payouts?

How can an insurance company make a profit by taking in premiums and making payouts?


a. The value of the premiums the company takes in is higher than the value of the payouts it makes.

b. The value of the premiums the company takes in is equal to the value of the payouts it makes.

c. The company only makes payouts from a pool of funds, not from individual premiums.

d. The company issues its policies to individuals who are unlikely to require payouts.



Answer: a. The value of the premiums the company takes in is higher than the value of the payouts it makes.

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