Answer
An insurance company can achieve profitability by ensuring that the amount collected in premiums exceeds the amount paid out in claims. Here’s a detailed breakdown: Insurance companies reinvest the premiums they collect in short-term investments, allowing them to earn additional income before any claims are disbursed, which often occurs months later. Additionally, they strategically establish premium rates that are higher than what might be required. Thus, the accurate answer is: The value of the premiums the company takes in is higher than the value of the payouts it makes.
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