Quote:
Originally Posted by Rekna
They refund premiums on the whole not to the individual.
Let me give you an example with some simple numbers (aka not realistic):
Let's say an insurance company has this plan A. On plan A there are 1,000 people. They each have a premium of $1,000 a year. Each year they take in $1,000,000. Let's say the % requirement is 90%. Then the insurance company must pay out $900,000. Let's say this year the insurance company only pay's out $500,000 in insurance claims, then they are $400,000 under what they must pay out. Thus each person would get a refund at the end of the year for the difference: $400 (400,000/1,000).
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That's not a feasable option though. If you refund all the money at the end of the year, then there's no money to be paid out for the following year. Each person is only paying say $100 dollars a month, it will take time for the premiums to build up in order to pay out. If they have to pay out $600,000 in claims in the month of january they will go bankrupt and be unable to pay. Plus it wouldn't be fair. Think of your cell phone bill. say you pay $90 per month for 1,000 minutes. If you only use 600 minutes do you get a refund? of course not. You are paying a predetermined amount per month for a maximum amount of minutes. If you didn't use them all it's not your cell phone providers fault. Same with insurance. You are paying your premiums because you are affraid you MIGHT need to file a claim. You have a maximum benefit that will be paid out for a predetermined amount of premium. it's the same thing