I've been hearing a commercial by an insurance company who kept saying they would give away the unused premiums at the end of the year. While that sounds like a noble cause, it does not seem to make much sense. What would they do in case of a serious catastrophe like a hurricane next year if they give away all their money this year?
As it turns out, there's a big difference between giving away the unused premiums and giving away the profits. Some insurance companies actually pay out more money than they collect in premiums. They make money by holding on to the premiums and using them for investments. Therefore giving away the unused premiums may mean they're giving away a very small amount of money or no money at all. If you hear the commercials I'm talking about, please pay close attention to determine whether they are giving away the premiums, which is not a big deal, or their profits, which is a huge deal. No one starts a business to give away their profits.