An insurance company is an enterprise engaged in insurance business, operating according to the principle of commercialization and pursuing profits. So how do insurance companies make money? Many people think that insurance companies must make money by charging so much premium every year. Actually, it's not exactly like this. Premium income is not the main source of profit for insurance companies. In the previous example, we can see that most of the premiums collected by insurance companies are used for compensation or payment of insurance benefits in the event of insurance accidents, and a small part covers the operating costs of insurance companies and provides a small amount of profits. Therefore, insurance companies charge premiums mainly to cope with risks, not the main source of profits. The profit sources of insurance companies include death income, spread income, expense income, termination income and asset appreciation income. Death interest is the difference between the insurance amount actually paid by the insurance company and the insurance premium charged every year. If the premium paid is more than the premium charged, the death interest is negative. Interest spread is the income obtained by insurance companies using funds to invest, and it is the main source of profit for insurance companies; The fee difference is the difference between the actual operating expenses and the expected operating expenses of the insurance company; Termination benefit is the surrender premium paid by the insured, and asset appreciation is the benefit brought by the appreciation of various assets of the insurance company, such as the appreciation of the company building. Before using funds for investment, insurance companies should first set aside a part of reserves to meet the possible claims, which is also called insurance reserves. Insurance regulatory authorities in various countries have strictly restricted and supervised the insurance reserve ratio, such as delineating the proportion of insurance reserve and centralizing insurance reserve, in order to prevent insurance companies from over-investment driven by profits, which will lead to a liquidity crisis that cannot meet the payment of insurance benefits. Insurance reserves of insurance companies can be used for investment, but the use of insurance funds must adhere to the principles of safety, profitability and diversity. The scope of use of insurance funds is also strictly limited by law. China's "Insurance Law" stipulates: "The use of funds by insurance companies is limited to bank deposits, buying and selling government bonds, financial bonds and other forms of capital use stipulated by the State Council. The funds of an insurance company shall not be used to set up securities institutions or enterprises other than the insurance industry. " At present, the funds of China's insurance companies are mainly invested in: bank deposits, government bonds, financial bonds, capital loans, investment funds and so on. Stock investment, real estate investment, mortgage loan and overseas investment must be approved by the State Council.

Further reading: How to buy insurance, which is good, and teach you how to avoid these "pits" of insurance.