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How do life insurance companies make money?

quakefiend420

quakefiend420

Lifer
do they just invest the cash you pay in premiums and hope they do well on it?

do they bank on you possibly dying in some way that isn't covered?

do they hope you'll become to poor to pay your premium at 80 years old?

someone help me out here

i did a little math and there's no way they would make the money back that they would have to pay out in the eventof your demise, especially if it's only 10 or 15 years down the road...

does inflation help them out?

😕
 
Term insurance, most people do not die within the term.
People who default on the premium or simply let it expire.
Investing is big source of income.
Reinsurance companies take the dollars from premiums and send it off shore where regulations are less strict for investing.
 
Originally posted by: quakefiend420
Originally posted by: FoBoT
they take in more $ in premiums than they pay out in claims
Click to expand...

but it's not like auto insurance where you may never make claim...everyone's gonna die eventually...
Click to expand...

but many people don't keep the life ins. policy until they die

many people buy term life and just keep it/pay on it during thier working years/while they have kids. so the money they pay while they need the insurance, the company keeps and they never pay that person at all when they die at a nice old age

whole life is a little different, but the policy values are so much lower, i would think the investment angle plays into whole life much more than term
 
Originally posted by: FoBoT
Originally posted by: quakefiend420
Originally posted by: FoBoT
they take in more $ in premiums than they pay out in claims
Click to expand...

but it's not like auto insurance where you may never make claim...everyone's gonna die eventually...
Click to expand...

but many people don't keep the life ins. policy until they die

many people buy term life and just keep it/pay on it during thier working years/while they have kids. so the money they pay while they need the insurance, the company keeps and they never pay that person at all when they die at a nice old age

whole life is a little different, but the policy values are so much lower, i would think the investment angle plays into whole life much more than term
Click to expand...

i see...that makes more sense
 
Many people buy term life insurance. In that case the you pay premiums from when you start to the end of the term, say when you turn 60. At that point you no longer have life insurance. This is for people who want to be covered while they are getting started, and have significant debts and want to send their kids to school, etc. Once they reach the end of the term they figure that they will have saved enough to retire and do not need insurance.
 
Insurance companies also do not keep 100% of the risk on large policies. If you were to take out a million dollar policy, the policy may be sent to reinsurers to spread the risk. So when you die, your original insurer only pays $250K of their own money and they collect $750K from reinsurers. In this scenario, a portion of your premium is sent to the reinsurers as well.
 
They base their rates on your age and your health status based on an "Actuary table". The Actuary table is a compilation of millions of death statistics, and yes a certain percentage of people defualt on their policy before death, and some die with no benificiaries, and many have company provided insurance for years and drop it when they retire, and others die of causes not covered (suicide,war,etc...). It's all a big numbers game that has been researched and studied for eons. And the time value of money is amazing, and insurance companies get much better return on investment than the average individual because of the huge amounts of their investments, and their ability to invest in things you and I can't. Insurance companies make a killing (pun intended)
 
they do invest the money.. my dad worked for a life insurance company, vp/investments. 🙂

it was fun when we were kids, he would have to visit these businesses he was considering investing in and sometimes we got to go along. I still love to tour factories, it's so cool to see different stuff being made.

anno

 
the insurance company makes money if you live longer than you expected to when you started paying into the policy.

they also invest. a lot. all of it, actually. just like all insurance companies (hint: medical insurance premiums have been going up because the stock market has been crappy, not because doctors have been incurring more liability)
 
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