I’m probably just stupid 😭
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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.
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).
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.
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.
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).
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.
$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)
$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)
$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)
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