What exact is whole life insurance, and how do life insurance companies profit from selling it?
Agents are always extremely keen about selling my family whole life insurance instead of term. According to the agents, whole life is preferable to term since it does not expire and as a result the beneficiary is guaranteed some payment upon the death of the insured. However, why would the insurance company profit from such a setup if they are bound to pay back an amount that is at least equal to the total amount paid?
I have tried to do some research on my own, but I still can’t seem to fully understand this matter. Any help will be greatly appreciated!
August 30th, 2009 at 3:22 PM
insurance website:
http://insurance1.cn
August 30th, 2009 at 3:22 PM
In any such insurance policy, most of the premium portion comes under mortality charges. The rest of the amount will be invested by the company. In a long duration of time, the company can recover not only its all expenses but can manage to return back some amount, depends upon the policy, back to the customer.
August 30th, 2009 at 3:22 PM
Unlike term insurance, you pay till you die. Then your beneficiary collects. Usually, it includes an extra charge that cumulates giving a cash value you can collect if you turn it in.
They profit by calculating actuarial statistics and probabilities of death. That determines the premium. The older you are when you take the policy, the higher the premium. The insurance companies invest the float they hold and make a profit from that. A little of that is added to your policy’s cash value.
August 30th, 2009 at 3:22 PM
Try to look at it more like an investment or a savings account. As with any kind of investment they are using the money you pay into it to make more money for themselves. Once you have paid in the value of the policy (say you have a fifty-thousand dollar policy) you can cash it in even though you’re still alive. In fact, once you have paid in the value of the policy it doesn’t make any sense to keep overpaying on it because you will only get the original fifty thousand if you die….