How do life insurance companies make money when everyone dies eventually and they have to pay out?

Answer 1

Life insurance companies make money by having a pool of insured pay their premiums every year. Then the insurance company invest their money into the stock market. Many life insurance being sold are cash value life insurance. This mean a life insurance contains a death benefit and a savings bundle into one product. For the insurance company to make even more money, they charge anyone monthly interest for anyone who wish to use their savings. If the insured dies, insurance company will pay the death benefit, but they will keep the cash value. How's that for making money?

Then there's a company that sells term insurance 100% of the time. Term insurance is like car insurance. You pay premiums to keep the contract enforced. If you don't pay, you lose the coverage. Just like other insurance companies, they make money by investing your premiums into the stock market. Some people outlive the term and some don't.

The point is, not everyone is going to die on the same day. Only one or few people die each day and the insurance company can afford to pay out all the death claims.

Answer 2

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Answer 3

Not all insurance policies are forever. Term life insurance is set up for a specific period of time - you pay in, say, while you have kids at home in case you die, but then the policy ends when they are gone. Insurance companies don't pay out in those cases (though generally you still get some benefit).

In other cases, for example, pay outs decrease with age. You don't get the same amount if you die at 70 as you (your family) would if you died at 30.

So, you have all these people paying in all this money and you don't end up paying all that money back out to all those people.

Answer 4

Two ways. First, they charge for issuing and maintaining the insurance -- it's called a premium. Second, the premium charge is large enough that claims on those funds during a particular year may not exceed the funds available, and the excess is invested at interest, so the interest revenue helps the bottom line. It is useful to know the mathematics of this; see the reference for details.

Answer 5

I live in a country with a single-payer system. Not only this, but the government owns and runs most of the hospitals and employs the medical staff. It's not a perfect system (and it's very costly), but it works reasonably well and is very popular. If you're sick, you'll get healed, whether you're rich or poor. Most of the fears Americans seem to express in these cases - that they won't be able to make choices about their healthcare, or that the state will be prying into their affairs - are laughably inaccurate.

Answer 6

Here's a simple answer.

Investing.

They take the money you give them and they invest it. They have so much money they invest it everywhere. And, while they generally are conservative investments, they are usually very, very wise investors.

Which means they make enough money to pay the face value of the policies and be able to clear a profit.

Answer 7

Its the law of large numbers.... If i sell a insurance policy upto age 60 to 1 million people, not all are going to die before the age of 60.. So i make money of their premium and pay the claims on those who die before 60...

Answer 8

I recommend one to visit this web site where onel can get rates from the best companies: http://PROTECTIONQUOTES.NET/index.html?src=5YAojmqfNU741

RE :How do life insurance companies make money when everyone dies eventually and they have to pay out?
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Answer 9

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Answer 10

Most people only keep a policy a few years.

Many people who have purchased life insurance, do NOT have it in effect at the time of their deaths - hence no payout.