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

The vast majority of life insurance is TERM life insurance, which covers for a specific period of time.

Typically, one gets term coverage for a period of time like until kids would be adults or house is paid off.

So some 30 year old who just bought a house and had a kid might get a 30 year term policy, which then covers them from age 30 to 60. Since most people don’t die in that age span, most policies don’t pay out. The 20 policies that don’t pay out for every one that does cover the costs. Plus, those $40/mo are invested by the insurance company and grow beyond just setting aside the money.