I don't understand how that answers the valid points that the person above (slurgfest) raised. It seems impossible to me that any company could offer a policy such as yours (patio11) for 45 years. (Yes, I know that you said that yours is 10 years, but please bear with me for the sake of my example.)
I think that slurgfest was trying to point out the flaws in the following kind of reasoning:
- A man buys a term insurance policy at age 30
- The policy that costs $20/month
- After 45 years, the total cost would be $20 x 12 x 45 = $10,800
- If the man dies at age <= 75, the policy pays out $500,000
- The average life expectancy in the US is 75 years (Wikipedia)
No company could offer a policy like that, right? There's a 1 in 2 chance that the insurance company will pay $500K but will only have received fees of $10K.
If the scenario I've described is possible, could you--or anyone--please explain why the insurance company wouldn't go bankrupt?
Yes, I know that you said that yours is 10 years, but please bear with me for the sake of my example.
Do you understand that the "term" in "term life insurance" is a very, VERY important detail? If you carry the term out to where there is an actuarial likelihood (or certainty!) of death, then yes, term life insurance does get radically more expensive. If you cover a) someone's working career or b) someone's expected career with a particular company, term life insurance remains quite inexpensive.
It's a 10 or 20 year term and the rate goes up when you're in your 50s. It's dirt-cheap now for those of us in our 20s and 30s without occupational death risks because the odds that we'll die are pretty low. But term life insurance when you're 60 is considerably pricier. And that's who the benefit is aimed at - industry veterans who are looking for the job they'll retire from a decade or so down the line.
I think that slurgfest was trying to point out the flaws in the following kind of reasoning:
- A man buys a term insurance policy at age 30
- The policy that costs $20/month
- After 45 years, the total cost would be $20 x 12 x 45 = $10,800
- If the man dies at age <= 75, the policy pays out $500,000
- The average life expectancy in the US is 75 years (Wikipedia)
No company could offer a policy like that, right? There's a 1 in 2 chance that the insurance company will pay $500K but will only have received fees of $10K.
If the scenario I've described is possible, could you--or anyone--please explain why the insurance company wouldn't go bankrupt?