Question

In general, insurance companies generate their revenue from receiving payments for policies and from earning a return from investing the proceeds until the funds are needed to cover claims. True or False

Answer 1

Insurance companies generate revenue by receiving policy premiums and earning investment income on reserves resulting from past premiums not paid out in claims, investing in safe, liquid assets.

Step-by-step explanation:

True, insurance companies generate revenue primarily through two streams: receiving premiums for policies they underwrite and from the investment income they earn on invested funds. These funds, or reserves, accumulate from premiums collected in the past that have not yet been paid out in claims. Insurance firms invest these reserves in secure, liquid assets to ensure they are able to fulfill their obligations to policyholders in the event of claims, particularly following major disasters.