I was looking for life insurance just in case. I found a company that will give me $2 million at $37 a month. So while I know the basics on how it works. If $37 a month for say 30 years doesn't come close to $2million yet if or when I die my beneficarary should get like $2 million dollars. So how is it that the insurance companies make repeated profits. I know they have other things like auto, renters, hurricane, tornado, earthquake, even kidnapping, as well as home, flood, fire, & other policies that help offset life insurance policies still it seems hard to believe how they make money let alone time & time again & often large amounts. It seems like they either do well or not & again obviously those based on nature mostly but still my question is how do they actually make their money?
2007-03-28 17:27:32 · 7 answers · asked by mas8baller 3 in Business & Finance ➔ Insurance
Like I said call me dumb thanks all the answers were very helpful.
2007-03-28 17:59:58 · update #1
Oh its funny the place I saw the ad offer the same amount to someone at 70 for $1296 amount for up to 30 years. So assuming they lived to 30 which even these days isnt promised the most they likely would pay is $500k premieme wise but their family will benefit almost 4 times that ... Funny how the business of insurance works I guess. So simple yet at times seems so complicated.
2007-03-28 18:04:56 · update #2
Insurance is a bet. That quote would probably be TERM life insurance, you'd be pretty young. The insurance company calculates the rates just like a bookie. The lower the rate with a high payoff, the less likely you are to cash it in - just like at the track - the greater the payoff, the less likely you will win.
2007-03-29 01:09:19 · answer #1 · answered by Anonymous 7 · 0⤊ 0⤋
The policy that you're looking at is a Term Life Policy. The easiest way of looking at this type of policy is that you are betting that you will die within the 30 years, the company is betting that you won't die during that time.
All insurance is based upon the Law of Large numbers, where the risk (paying a claim) is spread out among a great number of people. Although you are only paying in $37 a month, others are paying in similar ammounts (more or less depending on their own individual rating factors such as age, gender, smoker, etc). Take that $37 and multiply it by several thousand times monthly, then subtract any payouts, and well you get the point by now.
Because there are a great many people paying into the company and only a certain number number of policies which would require a payout it's possible for the company to make it's money. Most of it's money is held in reserve and portions are reinvested in various money investment vehicles. Which is another reason why premiums jumped after Enron and the whole dotcom type bubbles.
2007-03-29 00:32:48 · answer #2 · answered by Crighton 3 · 3⤊ 0⤋
Most Life Insurance Companies play the "odds". Everybody wants to live Forever (or Almost!), and nowadays most people are expected to live to 75- or higher. But most Life Insurance Policies expire anywhere from 5 to 15 years BEFORE then. So all the money you paid into it over the years (PLUS all the Interest they made on it) is THEIRS to keep. Multiply those Policies by tens of THOUSANDS, & they're making a LOT of money that they'll neve have to pay out!
2007-03-29 00:44:45 · answer #3 · answered by Joseph, II 7 · 0⤊ 1⤋
They make their money two ways. First, most people do not die while the policy is in effect, so the company doesn't pay out on most of its policies. Second, the insurance company invests the premiums and grows the money.
2007-03-29 00:34:25 · answer #4 · answered by Doctor J 7 · 1⤊ 0⤋
it isnt worth crap - who knows what that payout is contingent upon.
See a life insurance agent and get an honest answer. If they are licensed they have a strick code of ethics they must abide by and if they even imply something to you then by law whatever they say is true based on what they teach you in life insurance classes.
see your states website of insurance agents if you have any more specific questions
but DONT buy that policy
you want a whole life or universal life insurance policy
those policies are worth cash value if nothing ever happens to you. term life policies are like playing the lottery, but if you dont die, you dont even get to keep the ticket - you get nothing back
2007-03-29 02:17:18 · answer #5 · answered by lllll 4 · 0⤊ 0⤋
A lot depends on what type of insurance policy it is. Double check to make sure that is isn't for term coverage - check the fine print on that. You also may wish to check the policy for certain clauses in which they are not required to pay out.
Insurance companies make their money by investing the money you pay in your premiums.
2007-03-29 00:37:26 · answer #6 · answered by sagegranny 4 · 0⤊ 1⤋
also make money from policies that the consumer drops which is fairly common with younger policy holders.
2007-03-29 00:36:56 · answer #7 · answered by mememememe 2 · 0⤊ 1⤋