question: How do life insurance companies stay in business?
comment: Term Life Insurance is only valid for a particular time frame. Say I'm a healthy 30-year-old man. Chances are I can get a fairly inexpensive ten-year policy, since there's not a huge chance I'm going to die between 30 and 40. When I turn 40, that term life insurance policy expires. All of the money paid in during that term is the property of the insurance company. Say I want a new one - so I go back to the company and they look through my health history. I'm 40, and now I have high cholesterol and blood pressure, putting me at risk for cardiovascular disease. My premiums will be higher, because I'm at a higher risk of death. Finding the equilibrium between the amount of risk taken on and the amount charged in the premium is what the underwriters at the company do - they figure out how much they need to charge to never pay out more than they take in.
passages: Most of the revenue received by insurance companies consists of premiums, but revenue from investing the premiums forms an important source of profit for most life insurance companies. Group Insurance policies are an exception to this.
   In 2008 owing to the financial crisis ING had to enter into a bailout agreement, thus starting a global restructuring strategy, and decided to exit the insurance business in India. Prior to India, ING exited its insurance ventures in Malaysia, Thailand and Hong Kong as well.
  
  Section::::History.:Exide Life Insurance.
   Through life settlements, the secondary market for life insurance provides more options for policy owners to pursue when they no longer want or need their current life insurance policy. Many seniors paying premiums on life insurance policies cannot afford to continue. Premiums have skyrocketed and the need for the policy has diminished. More than 85% will simply let their policies lapse. Most likely, they are unaware they can sell these policies for four to ten times the cash value in the secondary market. If seniors give the proceeds from their life insurance policy sale to charity, they may reap substantial tax benefits.
   An academic study that showed some of the potential of the life settlement market was conducted in 2002 by the University of Pennsylvania business school, the Wharton School. The research papers, credited to Neil Doherty and Hal Singer, were released under the title "The Benefits of a Secondary Market For Life Insurance." This study found, among other things, that life settlement providers paid approximately $340 million to consumers for their under-performing life insurance policies, an opportunity that was not available to them just a few years before. It also has been stated by Neil A. Doherty, the professor at Wharton, that this practice drives up the cost of insurance to all other consumers purchasing life insurance.
   In 1978, Mark Sanford and William Blackburn were working as stockbrokers in Louisville, Kentucky when they decided to form their own company, Transmark USA, Inc. In 1984, Transmark purchased Guarantee Security Life Insurance Company (GSLIC) of Jacksonville, Florida. The two men moved to the Sunshine State, Blackburn taking charge of daily operations, while Sanford managed the investment portfolio.
   In August 2000, the Indian Government embarked on a program to liberalise the insurance sector and opened it up for the private sector. LIC emerged as a beneficiary from this process with robust performance, albeit on a base substantially higher than the private sector.
  
  In 2013 the first year premium compound annual growth rate (CAGR) was 24.53% while total life premium CAGR was 19.28% matching the growth of the life insurance industry and outperforming general economic growth.
  
  Section::::Operations.
   The corporation, which started its business with around 300 offices, 5.7 million policies and a corpus of INR 45.9 crores (US$92 million as per the 1959 exchange rate of roughly 5 for US$1), had grown to 25,000 servicing around 350 million policies and a corpus of over by the end of the 20th century.
  
  Section::::LIC's Contribution to the five year plans over the years.:Liberalisation post 2000s.
   The main use of these products is to provide retirees with a way to stretch their retirement resources to cover the possibility of living to a very old age. The likelihood that many buyers of such an annuity will not live to collect on it allows the insurance company to pay relatively high returns, higher than are available on low-risk investments, to the fraction of buyers who do live that long, i.e., mortality credits.
   The main example of non-lifelong-term insurance business is permanent health insurance, but the category includes pensions management. Capital redemption business, which is business written for a premium in exchange for a payment of an annuity over a period of, say, 99 years, is also long-term non-life business. However, for taxation purposes, only capital redemption business written before 1 January 1938 is treated as non-life assurance business.
  
  Section::::Categorisation.:Basic life assurance and general annuity business.
   Most of the visible and apparent wealth of Life Insurance companies is due to the enormous assets (reserves) they hold to stand behind future liabilities. In fact, reserves are classified as a liability, since they represent obligations to policyholders. These reserves are primarily invested in bonds and other debt instruments, and are thus a major source of financing for government and private industry.
  
  Section::::Cash values.
   Life settlement providers serve as the purchaser in a life settlement transaction and are responsible for paying the client a cash sum greater than the policy's cash surrender value. The top providers in the industry fund many transactions each year and hold the seller's policy as a confidential portfolio asset. They are experienced in the analysis and valuation of large-face-amount policies and work directly with advisors to develop transactions that are customized to a client's particular situation. They have in-house compliance departments to carefully review transactions and, most importantly, they are backed by institutional funds.
   By way of contrast, when small insurers fail, they tend to do so in a rather wild and spectacular fashion, as was often the case during the economic cycles of the 1970s and 1980s. Sometimes the result may be a state-supervised takeover by which a state agency may have to assume part of their residual liabilities.
  
  Section::::Types.
  
  A common typology of insurance in the United States is to divide the industry into life and health insurers, on the one hand, and property and casualty insurers on the other:
  
  BULLET::::- Life, Health
  
  BULLET::::- Health (dental, vision, medications, others)
   Section::::History.:Emergence of private companies.
  
  Until 1985, the JBC was the only institution to handle life insurance business in Bangladesh. Through the Insurance (Amendment) Ordinance 1984 and Insurance Corporations (Amendment) Ordinance 1984, the government allowed the private sector to establish insurance companies. Up to December 2000, at least 17 private sector insurance companies came into being and made the life insurance business competitive. In 2015 the number of private life insurance companies in Bangladesh has reached at 30.
  
  Section::::Insurance schemes.
  
  schemes
   On April 17, 2016, a report by "60 Minutes" claimed that life insurance companies do not pay significant numbers of beneficiaries.
  
  Section::::See also.
  
  BULLET::::- Corporate-owned life insurance
  
  BULLET::::- Critical Illness Insurance
  
  BULLET::::- Economic capital
  
  BULLET::::- Estate planning
  
  BULLET::::- False insurance claims
  
  BULLET::::- General insurance
  
  BULLET::::- Life expectancy
  
  BULLET::::- Pet insurance
  
  BULLET::::- Retirement planning
  
  BULLET::::- Return of premium life insurance
  
  BULLET::::- Internal Revenue Code section 79
  
  BULLET::::- Segregated funds
  
  BULLET::::- Servicemembers' Group Life Insurance
  
  BULLET::::- Term life insurance
  
  BULLET::::- Tontine
  
  Section::::References.
  
  Section::::References.:Specific references.
  
  BULLET::::- Sources
  
  BULLET::::- Oviatt, F. C. "Economic place of insurance and its relation to society" in
  
  Section::::External links.
   The insurance sector has gone through a number of phases by allowing private companies to solicit insurance and also allowing foreign direct investment. India allowed private companies in insurance sector in 2000, setting a limit on FDI to 26%, which was increased to 49% in 2014. Since the privatisation in 2001, the largest life-insurance company in India, Life Insurance Corporation of India has seen its market share slowly slipping to private giants like HDFC Life, Exide Life Insurance, ICICI Prudential Life Insurance and SBI Life Insurance Company.
  
  Section::::History.
   Insurance products are distributed by branch staff, which is sometimes supported by specialised insurance advisers for more sophisticated products or for certain types of clients. Life insurance products are fully integrated in the bank’s range of savings and investment products and the trend is for branch staff to sell a growing number of insurance products that are becoming farther removed from its core business, e.g., protection, health, or non-life products.
   For many years, the firm sold a mixture of "industrial life insurance" policies, with small face amounts and costing low premiums, to working-class individuals and small farmers and "ordinary life" policies for middle class and affluent persons. Much of this business was sold on the "debit" or "home service" plan, where usually the agent who sold the policy initially personally called on the client to collect the premiums when they became due.
   The sale of life insurance in the U.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and New York founded the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests created a comparable relief fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived.
  
  Section::::Modern insurance.:Accident insurance.
   Another area of convergence is the emergence of pure insurance risk hedge funds, that function economically like fully collaterallized reinsurers and sometimes operate through reinsurance vehicles, but take the form of hedge funds.
  
  Life insurance companies have developed a very extensive battery of alternative risk transfer approaches including life insurance securitization, full recourse reserve funding, funded letters of credit, surplus relief reinsurance, administrative reinsurance and related techniques. Because life reinsurance is more "financial" to begin with, there is less separation between the conventional and alternative risk transfer markets than in the property & casualty sector.
   In the United States, the most prevalent form of self-insurance is governmental risk management pools. They are self-funded cooperatives, operating as carriers of coverage for the majority of governmental entities today, such as county governments, municipalities, and school districts. Rather than these entities independently self-insure and risk bankruptcy from a large judgment or catastrophic loss, such governmental entities form a risk pool. Such pools begin their operations by capitalization through member deposits or bond issuance. Coverage (such as general liability, auto liability, professional liability, workers compensation, and property) is offered by the pool to its members, similar to coverage offered by insurance companies. However, self-insured pools offer members lower rates (due to not needing insurance brokers), increased benefits (such as loss prevention services) and subject matter expertise. Of approximately 91,000 distinct governmental entities operating in the United States, 75,000 are members of self-insured pools in various lines of coverage, forming approximately 500 pools. Although a relatively small corner of the insurance market, the annual contributions (self-insured premiums) to such pools have been estimated up to 17 billion dollars annually.
   The over-payments inherent in the level premium system mean that a large portion of expensive old-age costs are prepaid during a person's younger years. U.S. Life insurance companies are required by state regulation to set up reserve funds to account for said over-payments, which represent promised future benefits, and are classified as Legal Reserve Life Insurance Companies. The Death Benefit promised by the contract is a fixed obligation calculated to be payable at the end of life expectancy, which may be 50 years or more in the future. (see non-forfeiture values)
   Section::::History.:Nationalisation in 1956.
  
  In 1955, parliamentarian Feroze Gandhi raised the matter of insurance fraud by owners of private insurance agencies. In the ensuing investigations, one of India's wealthiest businessmen, Ramkrishna Dalmia, owner of the "Times of India" newspaper, was sent to prison for two years.
   By the early twentieth century, the Life Insurance Company of Virginia offered an array of products, including whole life annuities through its “Ordinary Division”, term life products, endowment policies, and limited payment policies through its “Intermediate Division”, and a set of products for the workplace through an industrial arm.
  
  The company began its series of acquisitions and reorganizations in 1986, when Life of Virginia was purchased by the Combined Insurance Company of America (AON Corporation) for $557 million. In 1995, GE Capital acquired most of AON Corporation’s life insurance business, including Life of Virginia, and in 2003, Genworth Financial
   Burns & Wilcox specializes in excess and surplus lines of insurance and works with admitted and non-admitted carriers. The company also offers standard lines policies such as homeowners, automobile, and professional liability. The following are examples of excess lines products provided by Burns & Wilcox: general liability, construction, marine, cyber-security and private client.
  
  Section::::H.W. Kaufman Financial Group.
   Life Partners Inc. is the world's oldest life settlement provider and one of the most active companies in the world engaged in the secondary market for life insurance. Life Partners Inc. is the architect of the newest asset class, life settlements, which has grown over the past decade to become an $80 billion industry. By selling the policy, the policyholder receives an immediate cash payment to use as he or she wishes.
  
  It filed for Chapter 11 bankruptcy protection on January 19, 2015.
  