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When you pay your car insurance premiums, you may wonder where the money goes. People often assume that premium payments represent pure profit for the insurance company, but these dollars are actually used in several different ways. Insurance companies are required by law to maintain adequate reserves to pay for policyholder claims. The more customers a company insures, the larger the amount of required reserves. There are many professionals who work to ensure your financial protection, including agents, adjusters, actuaries and operational management staff. Premiums are used to pay the salaries of these professionals. A percentage of premiums is used to fund investments. Income from these investments keeps your insurance company working for you during high-claim periods when insurance operations are otherwise unprofitable. Premiums pay for administrative costs associated with servicing your policy, such as billing, postage, paper and computer equipment. State insurance departments impose a variety of licensing fees, premium taxes and other assessments on insurance companies. Without these assessments, your state's insurance department would not be able to monitor insurance company activities or protect policyholders. CarInsuranceRates.com: Car Insurance Premiums - Where Do They Go?Reserves
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