how does life insurance make sense, like how does $40/month for 10 years get you 500,000 life insurance?

Question

I’m probably just stupid 😭

In: 4901

Answer 1

$40 x 12 months X 10 years = $4,800

$500,000 divided by $4,800 = 104.17

The insurance company believes that if they insure at least 105 like you for 10 years, they’ll turn a profit as they risk forecasters (actuaries) believe the odds of someone dying is less than 1 in 104.

Insurance company makes a profit if the odds are lower and/or they can insure more people with the same risk profile

(Add in margin, admin cost, advertising etc but the principal is the same)