Life Insurance

[285south]

I have brought the number of companies out there to a list of 4 and after doing even more research I found another one, making it 5, it's an association and I would be going with them. I'm happy even thou they are not a very large very known mutual company.

I would be going with a 20-year Term.

Question there are only a few that charge an small annual fee, would you go with them? Pacific Life is one of my 5 but is the only one that carries a fee.

 

[JayhawkRoy]

Add the annual fee into the annual premium amount and see how the numbers fall out by comparison. The annual fee is lost to you every year and will not be retrieved unless the total of premium and annual fee is less than the others. Most likely, the annual fee may also change in the future. Have never been confronted with that situation, so asking about annual fee increases is necessary.

My term insurance was with a small association, and I was fine with their insurance coverage. They also returned 25% premium amounts annually, so I felt like I won all the way around. I terminated my insurance when my mortgage became fairly low and term coverage was no longer needed, from my financial perspective.

 

[Bandito440]

At age 24 I was quoted $66/month for a $250,000 whole life insurance policy. If I live until the age of 80, I would have paid in $44,352.

During that time, the insurance company is investing the money and earning profits off of it. You could keep that money and invest it yourself.

Assuming ages 24-80 again, if $66 is invested monthly, your savings would be worth $316k if the markets average 7% growth and $440k if the markets average 8%. I used a simple retirement savings calculator to come by these numbers. That's how life insurance companies are making money, by investing what you pay to them.

I purchased a 20-year term policy instead, which was dirt cheap for a healthy young guy, and have been putting the remainder in my Roth IRA, which has been doing well.

 

[285south]

Originally Posted By: Patman
Can someone explain to me how insurance companies can possibly make money on life insurance policies? The monthly payments over someone's lifetime will never be as much as the payout, so it simply makes no sense how they make money, unless they simply don't payout a lot of the policies somehow? (is that even legal for them to not pay a policy, for instance if someone didn't know that they were entitled to it so they never contacted the company to begin with)

I pay $20 a month for my policy and when I die (which I most certainly will someday!) the payout is $200,000. I started this policy at age 30, so even if I live to age 100 I will have only paid them $16,800. This seems like a massive money losing venture for insurance companies if you ask me.


They made money once you miss the payment. But so many people did it became law to have a grace period (each state is different) of 31 days.

Grace Period - The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.

Lapse Ratio - The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of that period.


According to A 2005 Report
U.S. INDIVIDUAL LIFE PERSISTENCY UPDATE
A JOINT STUDY SPONSORED BY LIMRA INTERNATIONAL
AND THE SOCIETY OF ACTUARIES


says that:
Lapse for nonpayment of premium 9.5%
Death 0.2
Converted to another plan of insurance 0.9
Expiry/maturity 0.1
Remaining in force 89.3
Total 100.0%

Also in the report females buy lower face amounts compared to males.
The term sample is 40% female, 60% male by policy count and 25% female, 75% male by face
amount. The average face amount for females was $140,000 and the average face amount for males was $240,000.

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0CEYQFjAFahUKEwjr2vflj4LGAhXT9YAKHe8LAIE&url=https%3A%2F%2Fwww.soa.org%2Ffiles%2Fresearch%2Fexp-study%2Fresearch-2007-2009-us-ind-life-pers-report.pdf&ei=Wpp2VevFGNPrgwTvl4CICA&usg=AFQjCNHTGNDN0-P9TDmQtNWrtTECChkSkQ&bvm=bv.95039771,d.eXY&cad=rja

 

[Patman]

Originally Posted By: Wolf359


What kind of policy do you have? If you have a term policy, when you renew, once you're 10-20 years older, the monthly rate isn't going to be $20/month anymore. I think what happens is that the rates end up going so high that people don't end up buying a policy so when they die, there's no policy in place. Also once you hit 70 or 80, you probably won't be able to buy a policy.


With my policy, I do know that the rate will always be $20 per month, that will never change, and I don't need to renew it ever.