Long
Term Care Insurance
Example: home Long Term
Care Insurance
For example, let us assume a home is purchased for $100,000. Knowing
the loss of the home from a peril would cause significant financial
loss, Long Term Care Insurance coverage is ordinarily acquired in
the form of a homeowner's policy. The Long Term Care Insurance company
charges the insured a premium, of perhaps $1,000 a year in this example,
for assuming liability for the risk. At this point, the risk of loss
has been transferred from the insured to the Long Term Care Insurance
company. In the event of a covered peril, the insurer pays the claimant
the amount of loss according to the terms of the contract, in ordinary
circumstances, which may amount to the cost of replacing or repairing
the home.
How an Long Term Care Insurance company makes money
A customer may pay one or more premium payments over time. The company
collects these payments from one or more customers. If something happens
which triggers a claim, the company then pays out a certain amount
of money. If during the lifetime of all the companies Long Term Care
Insurance contracts, it pays out less then it has taken in, it makes
what is known as an underwriting profit. This is rarely achieved in
the Long Term Care Insurance industry, two companies that are famous
for achieving underwriter profit are American International Group
and Berkshire Hathaway.
