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How do life insurance companies make money?

Triumph

Triumph

Lifer
It's not like auto or health insurance, where you might get in an accident, or you might get sick. So how do they make money?
 
The sole purpose of the jobs of actuaries (that work for insurance companies) is to make sure they make money by ensuring people pay more than they get in return by roughly estimating when people will die then adjusting payments accordingly.
 
Originally posted by: Triumph
It's not like auto or health insurance, where you might get in an accident, or you might get sick. So how do they make money?
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They're banking on the fact that you dont die ahead of time. In the mean time they take your money to make more money.
 
it is all based on risk, thus life insurance is cheap for young people, and gets very expensive for older people. eventually people drop it because they do not want to pay for it, and if they do then that is profit for the insurance company. if they keep paying for it, it becomes likely that they have paid more than the benefit even pays out when they die. it is really only a good deal if you are going to die young.
 
Originally posted by: Legendary
The sole purpose of the jobs of actuaries (that work for insurance companies) is to make sure they make money by ensuring people pay more than they get in return by roughly estimating when people will die then adjusting payments accordingly.
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ding ding ding!
 
Well, I guess I understand it in principle, but still. My life insurance through work is something like 8 bucks per paycheck. I dunno if that's going to ever add up to the $20,000 in coverage that I have (or some number like that, actually I think it's more). That would take them 96 years to come out ahead.

So I guess the idea is to die before I turn 122 and I'll come out ahead!
 
It's not just the money you pay them, insurance companies are large institutional investors. They take your money, invest it, and hopefully at the end of it all they have a net gain.
 
Originally posted by: Triumph
Well, I guess I understand it in principle, but still. My life insurance through work is something like 8 bucks per paycheck. I dunno if that's going to ever add up to the $20,000 in coverage that I have (or some number like that, actually I think it's more). That would take them 96 years to come out ahead.

So I guess the idea is to die before I turn 122 and I'll come out ahead!
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Subsidized by work? Cost rises and/or benefits decrease over time.
Insurance is nothing more than gambling in my mind, the house always wins and will gladly pretend to be looking out for you when all they want is your cash.
 
Originally posted by: Triumph
Well, I guess I understand it in principle, but still. My life insurance through work is something like 8 bucks per paycheck. I dunno if that's going to ever add up to the $20,000 in coverage that I have (or some number like that, actually I think it's more). That would take them 96 years to come out ahead.

So I guess the idea is to die before I turn 122 and I'll come out ahead!
Click to expand...


no, you dont win. the people you love win unless your company is the one getting the 20,000...
 
Originally posted by: everman
It's not just the money you pay them, insurance companies are large institutional investors. They take your money, invest it, and hopefully at the end of it all they have a net gain.
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QFT x 100
 
Originally posted by: Triumph
Well, I guess I understand it in principle, but still. My life insurance through work is something like 8 bucks per paycheck. I dunno if that's going to ever add up to the $20,000 in coverage that I have (or some number like that, actually I think it's more). That would take them 96 years to come out ahead.
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Out of curiousity, how many coworkers in your building have died this year?

A lottery ticket is only $1, and pays out $1 million or more -- how do states make money on them?
 
There's also inflation to take into account. You might die 20 years from now and your beneficiaries will receive $20,000 but that might only be worth $10,000 in today's dollars.
 
I own a motorcycle and bought life insurance right before I got it...

If I die my parents get 500k...I might actually get my moneys worth...
 
Some policies do not get collected on - lost.

For others, people may miss premiums and therefore cancel the policy.

Others may just cancel the policy based on ecconomic needs.

The INS companies determine what the rate of return is required to be able to make the planned payments (based on number crunchers). Premiums and investments are made accordingly.
 
Originally posted by: everman
It's not just the money you pay them, insurance companies are large institutional investors. They take your money, invest it, and hopefully at the end of it all they have a net gain.
Click to expand...

Somehow, I'm guessing no one read this post.

So I suppose it's pointless to start discussing how insurance companies are the largest purchasers of mortgage backed securities in the U.S.

Maybe this'll work:

1. Charge you for an indefinitely deferred liability
2. invest the funds in a Prime+, real estate secured investment
3. Profit on #1 thanks to actuaries
4. Profit on #2 thanks to stability & rate of return
 
Originally posted by: Brackis
Subsidized by work? Cost rises and/or benefits decrease over time.
Insurance is nothing more than gambling in my mind, the house always wins and will gladly pretend to be looking out for you when all they want is your cash.
Click to expand...

I think NOT having most types of insurance is more like gambling than having it is. By not having insurance, you're playing the odds that something catastrophic will not happen. Odds are something catastrophic won't happen, but if it does you'd be screwed without insurance. If you were to get into an accident and have medical bills into the millions, I'm sure you'd appreciate your insurance company.

Yeah, they're there to make a profit like every business should, but they serve a necessary purpose.
 
When you are buying Life Insurance, you are making a bet that you will die before your time. If you win, your estate gets paid more than the cost of the policy. If you lose, you still get paid, but you will have paid more to the insurance company than they pay out. The job of the actuary is to calcualte the betting odds.


note - "cost" includes the time value of money. If you pay $100,000 for a $1,000,000 policy and die tomorrow, you win big. If you don't die for 30 years, you lose because your $100,000 would be worth more than $1,000,000 if you had invested it.

note 2 - In this game, winning is losing and losing is winning.
 
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