I haven’t done much research but from what I’ve read, the life insurance monthly payments are under $100 but will pay out huge numbers.
The example I found –
“Insurance Barometer Report said a $250,000 term life insurance policy for a healthy 30-year old would cost $500 a year or more.”
That’s like $25k total payments if they reach 80 years.
Am I missing something? How can companies afford this? Why isn’t absolutely everyone insured?
In: 6
The companies average out their risks over a lot of users, with the cost of the policy changing based on that risk.
The nation’s can be fairly tight when they are averaged over so many people, but the overriding fact is that they pay out slightly less on average than they charge.
If you are a fit thirty year old, it sounds like a great deal – you are paying in a relatively small amount for a large payout because the chance of death is realistically pretty low. Enough thirty year olds will pay their insurance and not die to cover the cost of the small percentage that do.
If you have health problems, you are more likely to die and this is taken into account by an increase in the monthly cost.
Similarly, as you age, your policy will be periodically re-evaluated. As you get older the costs will rise in line with the risk.
Keep your policy long enough and your will eventually end up turning positive for the insurance company – you will have paid in more than you will get back should you die. The problem is that if you cancel your policy you get back nothing at all, do most people keep them running anyway.
It is all just a big gamble – by taking out a policy you are assuming you will die before you reach the same amount of money by just putting the cost of a policy into a savings account every month. The insurance company are gambling that you will live longer.
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