How does an insurance company make money?

Insurance companies make money in two ways: by charging premiums and then reinvesting those premiums. Premiums are the money individuals pay to an insurance company in exchange for insurance coverage. Part of this money needs to go back directly to consumer costs, but there is a portion that can be assessed and invested.

A huge part of an insurance company making money is the ability it has to assume and diversify risk. Companies must find safe ways to invest their premiums so that they do not lose the money given to them by their customers, and so that they can earn even more money. From there, they can continue a cycle of investing, earning, and investing even more.