I was going through life insurance policies and noticed that even if I lived to be 100+ the amount of money I would pay into a life insurance policy would still be lower than the insurance pay out. I imagine many people die much sooner and get paid out even more than what they contributed. How do life insurance companies still profit off these policies when everyone will eventually die and cash out? It’s not like car insurance where you can go without an accident.
In: Economics
Most life insurance is term, meaning it expires after a certain number of years. You’d typically buy a term policy that covers until your kids are grown or house paid off and need for income replacement drops dramatically. Since most people don’t die in, say the 30 years between 30 and 60 that the policy covers, insurance only pays out on a small percentage of policies. Whole life, which pays whenever you die, is much more costly. And in either case, the insurance companies invest the premium money paid into them, typically for decades, to grow money in addition to the premiums collected.
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