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

Life insurance companies are educated gamblers. They are betting that you are not going to die for the next 10 years. To play the game, you pay $40 a month. If you “win,” i.e. die, the insurance company loses and your beneficiaries get $500K.

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If you lose, you pay $40 a month for the next ten years and get nothing, and in the insurance company “wins” (they get to keep it all and pay you nothing).

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As an aside, some term policies are convertible to full life insurance policies, but are usually more expensive and I would not tell this to a 5 year old.