I’m probably just stupid 😭
In: 4901
You **are not** guaranteed a $500,000 payout. You only get $500,000 **if you die during the term of the contract.**
Insurance contracts have time limits (terms) and you are only covered during that specific time limit. If you die **after** the term expires, you get nothing even if you already paid thousands of dollars in premiums.
Say Billy enters a life insurance contract that has a term of 2 years and the payments are $1000 a year ($2000 total). If Billy dies one year later, then his family gets paid out because he’s still within the 2 year term.
If Billy dies 2.5 years later, his family gets no money because the contract expired and the life insurance company essentially collected a free $2000 from his payments.
You’re confused because you think the payout is *guaranteed* (e.g., you pay $4800 and at some point you get $500,000) when it’s not. If you don’t die while the contract is active, you get nothing despite the premiums you paid.
You **are not** guaranteed a $500,000 payout. You only get $500,000 **if you die during the term of the contract.**
Insurance contracts have time limits (terms) and you are only covered during that specific time limit. If you die **after** the term expires, you get nothing even if you already paid thousands of dollars in premiums.
Say Billy enters a life insurance contract that has a term of 2 years and the payments are $1000 a year ($2000 total). If Billy dies one year later, then his family gets paid out because he’s still within the 2 year term.
If Billy dies 2.5 years later, his family gets no money because the contract expired and the life insurance company essentially collected a free $2000 from his payments.
You’re confused because you think the payout is *guaranteed* (e.g., you pay $4800 and at some point you get $500,000) when it’s not. If you don’t die while the contract is active, you get nothing despite the premiums you paid.
If you die, your payout comes from the people who didn’t die, not from your contribution. The purpose of insurance is to share risk among a group of people, not to fund your own risk.
You **are not** guaranteed a $500,000 payout. You only get $500,000 **if you die during the term of the contract.**
Insurance contracts have time limits (terms) and you are only covered during that specific time limit. If you die **after** the term expires, you get nothing even if you already paid thousands of dollars in premiums.
Say Billy enters a life insurance contract that has a term of 2 years and the payments are $1000 a year ($2000 total). If Billy dies one year later, then his family gets paid out because he’s still within the 2 year term.
If Billy dies 2.5 years later, his family gets no money because the contract expired and the life insurance company essentially collected a free $2000 from his payments.
You’re confused because you think the payout is *guaranteed* (e.g., you pay $4800 and at some point you get $500,000) when it’s not. If you don’t die while the contract is active, you get nothing despite the premiums you paid.
That’s how insurance works for all kinds of policies, not just life! You pay an insurance company a smaller amount per month/year and they insure you for a larger amount in case a catastrophic event that’s out of your control were to happen. Because the insurance company collects smaller premiums from so many people, they have the money to pay out on claims in event of a loss.
Think of it this way: you might pay your insurance company $40-200 a month to insure your car, depending on the year, make, and model. That might feel like a lot of money to you depending on your budget, but if you were to total your brand new car you probably wouldn’t be able to pay tens of thousands of dollar upfront to pay off the loan, let alone pay all the legal fees and settlements you might face if you were to be sued after hitting somebody and injuring or killing them.
It’s the same exact thing for life, it’s just people don’t view insuring their life to be as important as insuring their physical assets.
That’s how insurance works for all kinds of policies, not just life! You pay an insurance company a smaller amount per month/year and they insure you for a larger amount in case a catastrophic event that’s out of your control were to happen. Because the insurance company collects smaller premiums from so many people, they have the money to pay out on claims in event of a loss.
Think of it this way: you might pay your insurance company $40-200 a month to insure your car, depending on the year, make, and model. That might feel like a lot of money to you depending on your budget, but if you were to total your brand new car you probably wouldn’t be able to pay tens of thousands of dollar upfront to pay off the loan, let alone pay all the legal fees and settlements you might face if you were to be sued after hitting somebody and injuring or killing them.
It’s the same exact thing for life, it’s just people don’t view insuring their life to be as important as insuring their physical assets.
That’s how insurance works for all kinds of policies, not just life! You pay an insurance company a smaller amount per month/year and they insure you for a larger amount in case a catastrophic event that’s out of your control were to happen. Because the insurance company collects smaller premiums from so many people, they have the money to pay out on claims in event of a loss.
Think of it this way: you might pay your insurance company $40-200 a month to insure your car, depending on the year, make, and model. That might feel like a lot of money to you depending on your budget, but if you were to total your brand new car you probably wouldn’t be able to pay tens of thousands of dollar upfront to pay off the loan, let alone pay all the legal fees and settlements you might face if you were to be sued after hitting somebody and injuring or killing them.
It’s the same exact thing for life, it’s just people don’t view insuring their life to be as important as insuring their physical assets.
There are these people who LOVE numbers, they are called Actuaries.
Insurance companies hire these people to figure out all sorts of Probabilities, or the chance something will happen, based on things they can measure, like age and sex and weight and health and smoking and location and distance to fire hydrants and number of speeding tickets and credit rating.
Then the insurance companies ask these Actuaries something like “how many males aged 35 now, who are in decent health and don’t smoke do you think will die on the next 10 years? To which these number lovers will say 1 in 20.
The insurance company them makes a Life Insurance Policy and says for $4800 over the next 10 years, I will pay you $500,000 if you die. It then tries to get lots and lots of people to sign up for them. Once enough people do, and if their Actuaries are good at their jobs, they will make $960k from every 20 policies on 35 yr old men in decent shape that don’t smoke. And payout $500k to the 1 person that dies.
With the remaining money they pay the actuary, they pay for advertising, they pay the agent that sold you the policy and for the buildings etc. finally if they made a profit they pay the shareholders.
Insurance at its core is just the spreading of risk over a large group of people.
There are these people who LOVE numbers, they are called Actuaries.
Insurance companies hire these people to figure out all sorts of Probabilities, or the chance something will happen, based on things they can measure, like age and sex and weight and health and smoking and location and distance to fire hydrants and number of speeding tickets and credit rating.
Then the insurance companies ask these Actuaries something like “how many males aged 35 now, who are in decent health and don’t smoke do you think will die on the next 10 years? To which these number lovers will say 1 in 20.
The insurance company them makes a Life Insurance Policy and says for $4800 over the next 10 years, I will pay you $500,000 if you die. It then tries to get lots and lots of people to sign up for them. Once enough people do, and if their Actuaries are good at their jobs, they will make $960k from every 20 policies on 35 yr old men in decent shape that don’t smoke. And payout $500k to the 1 person that dies.
With the remaining money they pay the actuary, they pay for advertising, they pay the agent that sold you the policy and for the buildings etc. finally if they made a profit they pay the shareholders.
Insurance at its core is just the spreading of risk over a large group of people.
There are these people who LOVE numbers, they are called Actuaries.
Insurance companies hire these people to figure out all sorts of Probabilities, or the chance something will happen, based on things they can measure, like age and sex and weight and health and smoking and location and distance to fire hydrants and number of speeding tickets and credit rating.
Then the insurance companies ask these Actuaries something like “how many males aged 35 now, who are in decent health and don’t smoke do you think will die on the next 10 years? To which these number lovers will say 1 in 20.
The insurance company them makes a Life Insurance Policy and says for $4800 over the next 10 years, I will pay you $500,000 if you die. It then tries to get lots and lots of people to sign up for them. Once enough people do, and if their Actuaries are good at their jobs, they will make $960k from every 20 policies on 35 yr old men in decent shape that don’t smoke. And payout $500k to the 1 person that dies.
With the remaining money they pay the actuary, they pay for advertising, they pay the agent that sold you the policy and for the buildings etc. finally if they made a profit they pay the shareholders.
Insurance at its core is just the spreading of risk over a large group of people.
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