Life insurance companies unique strategy to make money

How life insurance companies make money ? We all wonder , how ? For example , if you pay £1,000 a year for 60 years(£60,000) and after you died your wife get £500,000?So how do they make money ? Yeah! Don't worry about that they have strategy to make money.

First of all  , insurance companies know that relatively few people actually cash in on their life insurance policies. Even people who sign up for permanent life insurance often decide to cancel the policy later in life. If you cancel a policy , you are only entitled to the cash value component of the policy minus a steep early termination fee.

Furthermore, insurance companies do not simply stick your premium payments in the bank .They invest all of the money in stocks, bonds and other interest bearing accounts. When the market plummet insurance companies take a hit, but with billions of pound or dollars in earnings each quarter they are doing just fine.

Insurers have a unique way to earn massive amounts of additional profit. Unlike many other types of businesses, insurance companies collect huge sums of cash throughout the year and may not have to pay on claims on those policies for many years. Also In the real world this profit is magnified by two main things that very few people in and out of the financial industry are aware of: 

1) Life expectancy is always increasing so when you buy the policy at age 35, life expectancy is 82. By the time you get there it will be 88 so the insurance company will end up with 6 more years of premiums than they factored in. 

2) Cash values built up through dividends on whole life plans are very enticing to people who don't manage money well so one day when they glance at their statement and see thousands of dollars just sitting there teasing them, they can't resist cancelling the policy and buying that big screen TV they wanted. Bingo, liability ends for the insurance company, they keep all the premiums paid, pay out some of the interest and pocket the rest.