TechFlowPost on Oct. 26 published an article by Huang Shiliang titled Ask One More Question When You See Insurance: Whose Promise Is This?, laying out a basic framework for understanding products that promise to make money from money.
Huang wrote that a middle-aged relative who lost his job had obtained an insurance sales qualification and started selling policies, often sharing insurance knowledge in a family chat group. In Huang’s view, much of that material resembled sales scripts learned in insurer training sessions rather than a coherent financial framework. He said he later used AI to help write and organize insurance-focused financial knowledge, and that the process also helped him turn vague ideas into a more structured system.
A three-question framework for wealth products
The article reduces the issue to three questions:
- What does your money ultimately buy? That points to the underlying asset.
- In what form do you hold it? That points to the investment vehicle, or the wrapper.
- Where do you buy it, and who actually holds the money? That points to the distribution channel.
Using that structure, a fund is a vehicle, stocks and bonds are possible underlying assets, and banks or brokerages are channels through which the fund is sold.
Huang argues that if a product cannot clearly explain what the money ultimately buys, that is an extreme warning sign. In his telling, vehicles and channels do not create returns on their own. They either take a slice through fees or reshape how returns are delivered. The source of return still sits in the underlying asset.
Underlying assets are where returns really come from
The article defines an underlying asset as the thing whose gains and losses the investor ultimately bears. It lists several common categories:
- Stocks, which represent ownership in a company and derive returns from corporate profits
- Bonds, which are money lent to others and generate returns through interest
- Cash-like assets, including deposits and short-term government bonds
- Commodities such as gold and crude oil
- Real estate
- Crypto assets such as Bitcoin and Ethereum
Huang says the test is simple: look at where the return ultimately comes from. If that answer is missing, the buyer may not be purchasing the asset itself at all.
Investment vehicles package assets into something people can buy
Most underlying assets are not easy for ordinary investors to hold directly, the article says. Buying all 300 stocks in the CSI 300 index would require substantial capital and ongoing rebalancing. Most bonds trade in the interbank market, making direct access difficult for individuals. Physical gold creates storage and verification problems. Infrastructure projects such as roads or power stations are not built for direct retail participation.
That is where the wrapper comes in. An investment vehicle packages the underlying asset into a product that can be purchased by the public. Funds are the clearest example: money from many investors is pooled, a fund manager buys stocks or bonds, a custodian bank holds the assets, investors own fund units, and the fund company charges an annual management fee.
The article notes that products sharing the same label can still have very different underlying assets:
- Equity funds hold stocks
- Bond funds hold bonds
- Money market funds hold deposits and short-term bonds
- Gold ETFs hold gold
- Spot Bitcoin ETFs hold Bitcoin
Other common vehicles include bank wealth-management products, trusts, insurance, futures, and options. According to Huang, what the vehicle changes is the fee structure, leverage, diversification, liquidity, and who makes the investment decisions.
He also points to direct ownership as a separate case. If someone buys a stock directly in a brokerage account or keeps Bitcoin in a self-custodied wallet, the vehicle layer is effectively empty and the asset and the holding form collapse into one.
The article also distinguishes between public and private funds. Public funds are openly offered to all investors and face the strictest regulation and disclosure rules. Private funds are sold privately to qualified investors, carry higher entry thresholds, disclose less, and face looser custody requirements.
Channels are where investors access the product
The third layer is the channel, meaning the point of access. Huang lists several examples:
- Banks, which sell deposits and wealth products and also distribute funds and insurance
- Brokerages, which offer stocks, ETFs, and bonds
- Third-party platforms such as Alipay and Tiantian Fund
- Insurance agents and insurance brokerage firms
- Crypto exchanges such as Binance and Coinbase
He adds a crypto-specific example. Before a user withdraws coins, the Bitcoin shown in a Binance account is, in substance, Bitcoin that Binance owes the user. What the user holds at that point is a promise, not the coin itself in a wallet they control.
Insurance is different because what you buy is a promise
That distinction becomes sharper with insurance. Huang says the underlying-asset box is hard to fill in for insurance. If one says the assets are bonds and stocks, those assets belong to the insurer, not to the policyholder. That missing box is exactly what makes insurance different from funds and many other products.
His conclusion is that insurance belongs in the vehicle layer, but it is a very unusual vehicle. When buying a fund, the investor owns assets and the fund company acts as manager. If the fund company fails, the assets remain in custody and still belong to the investor. In most insurance products, by contrast, the policyholder owns a contractual claim on the insurer. The assets sit on the insurer’s balance sheet, and the insurer owes the policyholder money calculated under the contract.
That is why Huang adds a fourth question for insurance: whose promise is this? In his framing, the policyholder and the underlying assets are separated by the insurer’s balance sheet.
Protection insurance and savings insurance are not the same thing
The article then splits insurance into two broad categories.
The first is protection-oriented insurance, including short-term medical insurance, accident insurance, and term life insurance. Premiums from these products go into the insurer’s general pool of funds and are invested together. Because short-term medical and accident policies may need to pay claims within a year, that money is usually invested over shorter horizons and tilted toward cash and short-term bonds.
The second is savings-oriented insurance, including annuity insurance and increasing whole life insurance. Those premiums also enter the same pool, and the insurer may pass them to its own asset-management arm to invest in bonds, stocks, and other assets. The policy value, however, is calculated according to rules written into the contract, such as the cash value table and the assumed rate, rather than moving in line with market prices of the assets.
Huang’s point is that both types of insurance feed the same capital pool. The difference lies in what the customer gets back: a claim payment when something happens, or a sum of money calculated under the contract.
How insurers make money, and why Buffett values float
The article breaks an insurer’s economics into four parts: premiums received, investment gains on those premiums, claims paid out, and various expenses, including commissions paid to agents and banks.
From there, Huang turns to the concept of float, a term Warren Buffett has repeatedly emphasized. Premiums are collected first and claims are paid later. During that gap, the money remains with the insurer and can be invested. If the insurance business itself does not lose money — meaning premiums cover claims and expenses — float functions like borrowed money that carries no interest cost. If underwriting is profitable, the economics are even better.
Huang notes that Buffett’s Berkshire Hathaway bought its first insurance company, National Indemnity Company, in 1967 and later acquired insurers including GEICO. He writes that Berkshire’s float now exceeds $100 billion, and that a large share of the capital Buffett used to buy stocks and acquire businesses came from that pool. Buffett, he adds, has repeatedly described insurance as Berkshire’s core business.
Insurance sits farther from direct investing when risk is ranked by who bears it
The article proposes another way to line products up: rank them by who bears the investment risk. On that scale, protection insurance sits farthest from direct investing, while products lower down the list look more like funds.
Protection insurance has no clear underlying asset from the buyer’s perspective. What the customer purchases is risk transfer, supported by the law of large numbers: many people pay premiums, and a smaller number who suffer losses receive claims. Huang states plainly that, in expected-value terms, buying insurance is a losing trade because premiums include the insurer’s costs and profit. What the buyer gets in return is protection against a low-probability but potentially life-altering loss.
As for where insurers invest, Huang says the real underlying assets are the insurer’s own portfolio. Bonds make up the largest share, followed by bank deposits, non-standard assets such as infrastructure debt investment plans and trusts, and long-term equity investments. Stocks and funds account for only a little more than one-tenth. The overall allocation is conservative because it has to match liabilities that may stretch decades into the future.
Five main channels sell insurance
The article then shifts to distribution and asks who else is selling insurance besides the large number of middle-aged career switchers entering the field. In Huang’s view, they are peers and competitors at the same time.
He lists five main channels:
- Individual agents tied to an insurer. This is the largest sales force, with a relatively low barrier to entry and a common path for mid-career entrants. The advantage is face-to-face explanation of complex products and long-term service. The limitation is that they usually sell only one company’s products, rely mainly on commissions, and often begin with relatives and friends before having to win trust from strangers through expertise.
- Bancassurance. Bank relationship managers sell insurance through branch networks. Banks bring traffic and trust, and depositors are often introduced to insurance while handling savings, so this channel tends to sell savings-oriented products such as annuities and increasing whole life policies.
- Insurance brokers and professional agencies. These firms are independent from insurers and can sell products from multiple companies, allowing customers to compare across providers.
- Internet platforms. Huang names Alipay, WeChat’s WeSure, and insurers’ own websites and apps. These channels mostly sell simpler, lower-priced products such as million-yuan medical insurance, accident insurance, and term life insurance, with customers comparing and placing orders on their own.
- Group insurance. Employers buy coverage for staff, such as supplemental medical insurance and accident insurance, and individuals usually do not choose the product directly.
Placed side by side, Huang says, the pattern is clear. The simpler the product, the easier it is to move online for self-service purchase, and the more transparent the price becomes. The more complex the product — savings insurance and critical illness insurance are his examples — the more it depends on someone explaining the terms clearly. For agents, simple products are hard to defend on price against internet channels. Their value shows up when they can make complicated products understandable.
He adds that selling insurance starts with choosing what to sell. Products such as auto insurance, which are widely available and highly standardized, leave little room for a salesperson. Products that require trust and explanation leave more room.
Distribution costs are built into the product price
Unlike funds, the article says, insurance distribution costs are included in the product price. Commissions paid to agents and banks are often concentrated in the first few years. Huang says that is one of the main reasons savings-oriented policies tend to have low cash value early on and why surrendering them in the first years can lead to large losses. Similar products sold online are often cheaper for the same reason.
Three layers, three kinds of risk
Huang closes by returning to the original framework and arguing that its value lies not only in breaking products apart, but also in identifying where risk comes from.
- Underlying-asset risk: market moves. If stocks fall, an equity fund will fall as well, regardless of the wrapper or the channel.
- Vehicle risk: fees eating into returns, leverage causing forced liquidation, money being locked up, or mistakes by the fund manager.
- Channel risk: platform failure, misuse of funds, or outright collapse. Huang places China’s P2P blowups and the collapse of FTX in this category, where the underlying assets may not have been the core problem but the intermediary was.
He writes that many people lose money without being able to say which layer failed. Once the layer is identified, they know what to guard against next time.
Applied to insurance, the key issues are product structure and counterparty strength
When the same framework is applied to insurance, Huang’s breakdown is as follows:
- Underlying-asset risk: for guaranteed products, much of this risk is shifted to the insurer, which is one of the product’s main selling points.
- Vehicle risk: this is the heaviest layer in insurance. Money can be locked up for long periods, surrendering in the early years can mean losing principal, policy language can be complex, and non-guaranteed illustrations may not be realized.
- Counterparty risk: in insurance, the third category is usually centered less on the sales channel and more on the insurer itself.
On China, the article says this layer has relatively strong protection. By law, life insurers cannot dissolve themselves voluntarily. If a life insurer is revoked or goes bankrupt, its life insurance policies must be transferred to another life insurer for continued performance. If liquidation assets are insufficient, the insurance protection fund may step in. Huang also notes a limit: under current rules, assistance for individual life insurance policies is capped at 90% of the original policy benefits.
The four questions Huang leaves readers with
The article ends with a compact checklist. For any product that asks you to exchange money for return, ask three questions first:
- What does your money ultimately buy?
- In what form do you hold it?
- Where do you buy it, and who holds the money?
When the product is insurance, ask one more: whose promise is this?
Huang’s final distinction is direct. Protection insurance is risk transfer and should not be viewed through the lens of investing. Savings-oriented insurance is better understood as an ultra-long-dated bond issued by an insurance company. When reviewing a savings policy, he says, focus on three things: how much of the return is guaranteed, how many years it takes to break even, and whether the insurer is reliable.
