Who can live in the modern world without insurance? People insure anything and everything nowadays to feel secure about their possessions in this risk-filled world. And so insurance companies have become part and parcel of life today.

An insurance company is an organization that sells insurance policies and assures security for the client or administrator. Insurance companies are in the business of providing financial protection against risks involved in property, houses and health. They make profits from the premiums paid by their clients. This money is technically termed “float,” and the success of an insurance company will depend on the success of its floats. If the floats are successful, the company will profit even if it pays back the entire amount it has received in premium.

Even when insurance companies pay out more money in claims that they actually receive in premiums, as most companies do, they still make profit by investing the money at a larger return than their cost of float.

Traditional insurance companies were mutual or stock companies, depending on the ownership of the company: policyholders and stockholders, respectively. But mutual insurance companies are very rare now, and so we can go into a more practical classification. Insurance companies can be classified as mainly Life Insurance companies and General Insurance companies, dealing in life insurance and property and auto insurance, respectively. They differ in their functions and services because life and related insurance policies are taken out for long periods of time, whereas general insurance policies cover short periods of 1 to 5 years. There are companies that sell both life and general insurance also.

Insurance companies are rated by financial rating services like A. M Best, Standard & Poor, Fitch and Diamond Bond. If you buy policies from a company that comes in the top four in any of these ratings, you can consider your insurance to be in safe hands.

Eric Morris