Insurance companies play a crucial role in our society, providing individuals and businesses with financial protection against unexpected losses. To do this, insurance companies collect premiums from policyholders. But what happens to your premium once it is paid to the insurance company?
Insurance companies don’t just store your premiums in a giant safe until they’re needed to pay claims. Instead, they put these funds to work by investing them. This practice is vital to insurance companies for several reasons.
Let’s break it down. When you pay a premium for an insurance policy, the insurance company pools your premium together with those paid by other policyholders. The pooling of premiums is the first step that allows the insurance company to spread out the risk of potential claims among many policyholders.
Now, these pooled premiums form a large amount of money known as a reserve. This reserve is there to ensure that the insurance company has enough money to pay out if a policyholder files a claim. But while this money is sitting in the reserve, the insurance company doesn’t just let it idle. They invest this money to generate income and to increase the value of the reserve.
Investment income helps to keep the insurance premiums lower than they would be otherwise. Without the income from investments, insurance companies would need to charge much higher premiums to maintain their financial stability and be able to pay claims.
So, how does an insurance company invest your premiums? They typically follow a conservative investment strategy because it’s essential to maintain the ability to pay claims even in unfavorable market conditions.
The investments of insurance companies are usually in the form of bonds, especially government and high-quality corporate bonds. Bonds are chosen because they are relatively safe compared to other types of investments and provide a steady income in the form of interest. Some part of their investments might also be in real estate, mortgages, and stocks, but these usually represent a smaller portion of the investment portfolio because they come with higher risk.
The specific rules and regulations about how insurance companies can invest their funds vary from state to state and are overseen by the state’s department of insurance in which the company is domiciled. These regulations are in place to ensure that insurance companies are not taking excessive risks with the premiums they have collected.
Insurance premiums are not just used to pay claims. Instead, they are carefully invested to earn income, helping the insurance company to remain financially stable and to keep premiums affordable. This prudent financial management is essential to ensure that the insurance company can honor its commitment to policyholders even in the face of large or unexpected claims.
Dave Stanley is the host of Safe Money Radio WOOD1300 AM, 106.9 FM and a Financial Advisor and Writer at Integrity Financial Service, LLC, Grandville, MI 49418, Telephone 616-719-1979 or Register for Dave’s FREE Newsletter at 888-998-3463 or click this link: Dave Stanley Newsletter – Annuity.comDave is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management.
Whole life has a simple objective, to ensure your “whole” life, in other words, it will pay the benefits anytime during your whole life, regardless of how long you live. All you need to do is pay the premium.
Image from Pxhere.com
Life insurance is a contract between an insured person (the policyholder) and the insurer. The premium pays for guaranteed benefits in case of death, but there are other features that can provide additional protection as well.
In exchange for fixed premiums, whole-life policies offer life insurance protection and tax deferral on growth by accumulating cash value with competitive interest rates.
In exchange for fixed premiums, an insurance company promises to pay a set benefit when the policyholder dies but also offers additional benefits as well. Whole life insurance policies can build up cash value, effectively a cash reserve that pays a modest rate of return, and the growth is tax-deferred. Guarantees are based on the claims-paying ability of the issuing company.
Borrowing still option
Most whole life insurance policies allow policyholders to borrow a portion of their policy’s cash value. Access to the cash value can allow you to pay for things like college expenses, a home down payment, or any other needs you may have.
When the policyholder dies, his or her beneficiaries receive the benefit from the policy. Depending on how the policy is structured, benefits are usually not taxable.
Whether whole life insurance is the best choice for you may depend on a variety of factors, including your goals or circumstances.
Considering options
Whole life insurance can be an excellent investment for those who want to be protected financially after death. The policies promise a fixed benefit but also offers additional benefits such as cash value – which can build up and provide returns tax-deferred in order of security against personnel losses caused by unforeseen events like accidents or illnesses, and guarantees based on claims-paying ability from issuing companies.
The FDIC (Federal Deposit Insurance Corporation) does not insure life insurance. It is not insured by any federal government agency, bank, or savings association. Each state’s Department of Insurance regulates life insurance.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
Dave Stanley is the host of Safe Money Radio WOOD1300 AM, 106.9 FM and a Financial Advisor and Writer at Integrity Financial Service, LLC, Grandville, MI 49418, Telephone 616-719-1979 or Register for Dave’s FREE Newsletter at 888-998-3463 or click this link: Dave Stanley Newsletter – Annuity.comDave is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management.
Officers look over the damaged police cars from the May 30 riots. Five Wyoming Police vehicles and two Grand Rapids police vehicles were burned. (Supplied/Wyoming Department of Public Safety)
The City of Wyoming received some good news in that the cost to replace five police cars that were burned during the May 30 riots in Grand Rapids will be mostly covered by insurance, according to Wyoming Police Chief Kim Koster.
The news came as a surprise since, as reported by City Manager Curtis Holt at a June meeting, most insurance coverage does not provide for riot or civil disservice.
Chief Kim Koster
A recent report from Koster showed the insurance would pay about 60 percent of the costs to replace the vehicles with no expected change in the departments insurance premiums. Total replacement costs for the five vehicles is $372, 585.99. Insurance will cover $219,940.99 with the city’s out of pocket costs around $152,645. The department does have a depreciation reserve for replacement of vehicles, with each of the departments 27 vehicles having its own replacement fund. There was about $140,000 available in replacement funds specifically for the five cars that were lost on May 30. This left the city with an unbudgeted net cost of $12,645.
The Wyoming Department of Public Safety’s fleet services was able to get one new vehicle on the road fairly quickly with fleet services continuing to work on the remains cars.
“It does take time to get the cars ready as they do not come fully equipped,” Koster said.
The Wyoming Department of Public Safety has one of the few K-9 units, which assists other departments in the county. (WKTV)
A Cooperative Between Departments
The lost of the cars did create a hardship for the department, Koster said, adding that despite that, if faced with the same situation again, she would not hesitate to send the Wyoming officers out to help assist Grand Rapids or any other police department in Kent County.
“The cooperative we have [between police departments in Kent County] is unusual,” Koster said. “We hear it from other officers across the country and even from other parts of the state talk about how unusual it is.”
Some departments have specialized in certain areas. For example, the Wyoming Department of Public Safety is one of a handful of departments that has a K-9 unit as well as a forensics unit. There is also the Metropolitan Fraud and Identity Theft Team comprised of detectives from the Grand Rapids Police, Kent County Sheriff, Wyoming Police, and Kentwood Police departments.
“I think it is important for Wyoming residents to know that we have relied on other departments as much as they have relied on us,” Koster said, adding perhaps one of the best examples of this cooperative has been the Metro Cruise.
“Many people just love coming down for Metro Cruise,” she said. “It is a a good family event and people have a good time. For us to assure the safety of residents, we have had to rely on other agencies.”
Just a year ago, a Grand Rapids protest came into the City of Wyoming, ending at the Secretary of State’s office. The Grand Rapids Police stayed with the protest as it moved to the City of Wyoming, working with Wyoming officers. Koster added “that there is some comfort in knowing that public safety doesn’t stop at a border.”
The services come at no cost to the city with only the understanding that when asked, Wyoming will return the favor. Such was the case on May 30.
One of the five Wyoming Police cars on fire the night of May 30. (Photo by Andris B Visockis)
The events of May 30
The first that any of the Wyoming Department of Public Safety officers learned that their cars were on fire during the May 30 riots was when it came over dispatch.
“Dispatch asked if there were any police cruisers on Pearl because they had just gotten a report of a police car on fire,” Lt. Eric Wiler said. “That was my car.”
The Wyoming officers, along with those from Walker, Kentwood, Kent County, and Ottawa County, came to Grand Rapids that night to help the Grand Rapids Police Department. About 10 officers, who were part of joint tactical bicycle brigade, had gone down earlier in the day with Grand Rapids Police Department requesting additional help around 9/9:30 p.m., Wiler said, adding about 20 Wyoming officers responded.
The Wyoming officers were first along Market Street but a call came that GRPD needed more officers at its station as people were attempting to break into the building, Wiler said. The officers relocated, parking the five Wyoming police cars on Pearl Street.
“When we parked, there was nothing happening on the street,” Wiler said. From reports, rioters moved away from the Fulton/Division area down to Pearl Street.
“I watched as they set fire to the prosecutor’s building,” Wiler said. “By that time, there was more of them than us and all we could do is try to keep people safe.”
Koster said as she heard how the events were unfolding in downtown Grand Rapids, her concern became more of the safety of the officers and the public.
“I was relieved, happy, thankful that our officers were able to safely return to our offices,” Koster said. “I felt for the business owners who suffered the damage. I don’t think violence is ever the answer.”
The Wyoming Police cars from May 30. (Photo by Andris B. Visockis)
Understanding the anger
“First and foremost, I have to say that we are all in agreement in that what happened to George Floyd was disgusting and distributing,” Koster said, adding she understands the anger as she too was appalled by the arrest video of Floyd. “I believe those officers deserved to be criminally charged. They were a betrayal to the badge that we all wear.”
To the best of her knowledge, Koster said she is unaware of the Wyoming Department of Public Safety having an incident similar to that of George Floyd. She credits this in part to the accreditation the department received from the Commission on Accreditation for Law Enforcement Agencies (CALEA). Considered the gold standard in public safety, CALEA requires departments to meet certain standards in such areas as accountability and transparency. This includes internal affairs and that these cases are handled in a proper manner.
In fact, in the Wyoming Department of Public Safety’s annual report, there is a section that reports the number of internal investigations that have taken place in the department. In the 2019 report, the department had 23 cases of which six allegations were deemed sustained.
Koster noted that the department continues to review and update its policies and practices.
The silver lining
Besides the officers returning safely, there was another silver lining from the May 30 incident. The department was looking to replace its current in-car camera system, which is outdate and not supported, Koster said. The five new vehicles will have the new in-car camera systems which the insurance company will cover fully as part of its payment. The cost for the new in-car camera system for the five cars is just below $50,000.
