Viewing Thread - How do life insurance companies make their money?

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RE: How do life insurance companies make their money?
- Posted Mon, May 19th, 2008 by Post a reply

Hello,
I'm new here and very happy to have found a Canadian site about financial matters...even though it would have been better had I found it say 40 years ago,lol !
Anyway, what I'm wondering is if I'm even eligible for any kind of life insurance at this point in my life. As a result of some very difficult matters in my life I am basically penniless insofar as assets, a home, RRSPs etc. go. I am the single mother of a developmentally delayed adult son who was only very recently even diagnosed and who still lives with me. I worked for all of my adult life and did quite well, having paid off a home & new vehicle by the time I was 40. But the increasing costs of caring for my son and maintaining & repairing our large older home combined with my own diagnosis of fibromyalgia 10 years ago made it pretty much impossible for me to work enough to keep it all going. In short I gradually ended up losing everything I'd worked for and am now living on a CPP disability pension & renting a small suite.{ My son is on a provincial {B.C.} disability pension. I have just turned 60.

What I'd like to do is get life insurance just so I could leave some kind of a trust fund for my son, since there is no longer the home that was going to go to him. Just enough so he could have a vehicle and a few other things that are not possible on a disability. { All I've ever had for insurance are a couple of those "Accidental Death" type policies as well as "balance protector" policies for my visa and line of credit.}

So I was wondering if Monty or anyone else here could advise me as to what might be possible for me to get in the way of life insurance.{ By budgeting very carefully I could spend up to $150.00 per month on insurance.} Any & all advice will be very much appreciated !
A good evening to all,
Learningcurves

RE: How do life insurance companies make their money?
- Posted Sun, Apr 20th, 2008 by Post a reply

It is important to have life insurance.This includes retirement plans and mutual plans.

____________________
Josie Scott
Did you see it? One more time? You won't get faked out here!http://www.SelectWealthSystem.com/?t=wc

RE: How do life insurance companies make their money?
- Posted Wed, Feb 20th, 2008 by Post a reply

Having said that,

It's a really important thing to have life insurance to cover your mortgage and your other assets and liabilities.

It's important to know the terms of the contract before you purchase though.

Need a life insurance quote?

Alberta, Ontario, British Columbia.

RE: How do life insurance companies make their money?
- Posted Wed, Feb 20th, 2008 by Post a reply

I saw a nice program on CBC's market place that talked about mortgage insurance. http://www.cbc.ca/marketplace/in_denial/

They basically said that the chances of people collecting on mortgage insurance policy is slim. The insurance companies have added so many hidden pieces in their contract that it's hard to catch them all unless you study them with several experts. I was astounded when I saw that.

So.. even though the chances of something happening to you are slim, the chances of collecting one of these policies is even slimmer.

The life insurance companies make sure that the odds are well stacked in their favor. Catching people on a technicality and not having to pay out.

That's how they make their money!!

RE: How do life insurance companies make their money?
- Posted Thu, Apr 12th, 2007 by Monty Loree Post a reply

That's the idea...
Life insurance companies are hard core profit oriented.
Warren Buffet's company includes many life insurance companies including Geico.

Where as it may look like they're giving back millions and millions to alot of people, they're not.

Life insurance companies are about money, software systems, money, employees, and sales force. Oh yeah, and money!

RE: How do life insurance companies make their money?
- Posted Thu, Apr 12th, 2007 by Robert Fox Post a reply

I was curious about this as well..
You would think that if somebody dies and the insurance company has to pay out $1 million dollars, that would suck their coffers dry after a while.

That's the impression that I had any way.

The idea of a life insurance policy seems to be that you pay in for 10 years and if you die, you get your money.

In my case, my premiums are $150 per month over a 10 year period. My policy is $250,000.

That's $18,000 that I'll pay over a 10 year period.

To pay $18,000 for a $250,000 return, IF I die sounds like a good return on inverstment.

Logically the vast majority of people who have an insurance policy don't die. The equivalent of the vast majority of people who go to Las Vegas don't win.

How do life insurance companies make their money?
- Posted Sat, Jul 23rd, 2005 by Monty Loree Post a reply

It took me a while to figure out how life insurance companies make their money. I thought to myself, "If everybody who owned a life insurance policy died, the life insurance companies would be bankrupt within a short time."

It's obvious when you think about it, only a small percentage of people have an active life insurance policy when they die. This is the only thing that makes sense business wise.

The best way to explain to explain a life insurance companies revenue is by talking about a 10 year term life insurance policy:

Let's say you start off at age 30 with a 10 year term life insurance policy. It will expire when you're 40 years old. (I love easy math). Actuarilly speaking, you're not supposed to die between the ages of 30 to 40. Let's say you purchased a $250,000 life insurance policy and your premiums each month are $100.00, or $1200 per year.

In order to maintain your coverage for a 10 year period, you are going to pay out $12,000 in premiums. If you die at any point during the 10 years, your beneficiaries are going to receive $250,000. That's a pretty good return on investment. The only problem is, you're not going to be there to enjoy it.

If you don't die in the 10 year period that you own your policy, the life insurance companies keeps the $12,000 that you paid them. So... they in fact made $12,000 for a sale that took 2 hours, 10 years ago. All they had to do was keep your policy listed and up to date and send you yearly notices of the status of your account, if that.

After the 10 year policy has expired, you take out another one at an even higher rate of premiums.

Obviously there's much more to the life insurance business than that, however, that's it. Millions of people take out life insurance policies and pay them for the full term and never see the benefit of their money. (Which isn't a bad thing)

Here's the next step to understand. Life insurance companies won't sell you a policy past a certain age (approx 70 years old) They won't sell policies that take you into your late 70's and early 80's. These are the years where, actuarily speaking, people are likely to die from natural causes.

What the life insurance companies are hoping is that you'll purchase life insurance packages through out your life. That gives them a stream of income. By the time your old enough to die from natural causes, you won't have a life insurance policy in place. Thus you won't be able to collect anything.

For simplicity sake, let's assume that you started your life insurance policy when you were 20 years old and paid until you were 70. Let's say that your payments averaged $100 per month over that time period. That's 50 years or 600 months. 600 months x $100 = $60,000 paid to the insurance company.

Again for simplicity sake, let's assume that you die right when your last policy runs out at age 70. If your policy was for $250,000 and you only paid in $60,000, you would make a net return of $190,000. You would have to get a unreasonably high rate of return all of those years to match $190,000.

If you don't die by age 70, then the life insurance company has made $60,000 of revenue and won't have to assume any more risk for you.

In a highly simplified manner, that's how the life insurance companies make their money.

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