Questions about life insurance?

Question

I'm looking into getting life insurance and I'm wondering how the whole process works. If I take out a $300,000 whole life policy on myself with my fiancee as beneficiary, and I pay the premiums every year until I die, is she guaranteed the $300,000 no matter what? Does it matter how old I am when I die, what I die from, or how much I've paid into the policy?

I guess I don't get how companies make money on life insurance. If everyone has a life insurance policy on themselves, isn't the insurance company paying out millions of dollars every day? Or is life insurance a rarity for someone to have on themselves?

Answer 1

Incognito - I pray nothing happens to either of you, because you know how you will feel if something bad was to happen, God forbid.

Answer 2

As long as the premiums are paid and the policy is in force, she will get the face amount ONLY (unless you pay MORE to get the cash value as well).

Find a 20 or 30 term policy to cover BOTH of you.  It will be cheeper than the one policy on you.  You can then take the difference in price and put it aside for your use and get 10-12% instead of the 4% the cash value would have given you.

Insurance companies make there money like the those above have mentioned.

To the first response.  The price went up, based on what you said, because you had a 10 yr term policy.  If it was not renewed or converted, that is what happens.  Until you get the savings setup, I urge you to get another policy with a longer term to give you the time you need to build those cash reserves.

You don't buy insurance to use it, you buy it to cover something you can't afford to loose.

Answer 3

The first few years of the policy, it matters how you die, and how honest you were on the application.  After that, it doesn't matter - as long as the policy is in force at the time of death, it will pay the listed beneficiary.

Insurance companies make money off of life insurance, for several reasons.   1.  Not everyone has a life insurance policy.    2.  Most people who buy one, keep it in force less than 5 years.   3.  Only about 30% of the people who die in the US have life insurance in force at the time of death.  

In other words, lots of people buy it, sometimes once or twice.  But most of the time, they don't keep it long enough for payout (that would be, until death).  

The vast majority of an insurance company's profit, though, comes from it's investments.  They have to set aside a certain amount (in millions) of money for future claims - they invest that, and it's those profits that make the money for the insurance companies - not the premiums.

Answer 4

Go to Yahoo Finance and click on "Personal Finance."  There is a section that explains life insurance.

Answer 5

Yes, if you pay your premiums, the insurance company would pay the entire death benefit to your girlfriend, the beneficiary, in a lump sum, tax-free. True if you die 50 years from now. True if you die 30 years from now. And true if you die next month. The principle at work is “shared risk.” Chances are you’re not going to die next month or even in the 30 years. Meanwhile, your premiums—the premiums of everyone your age—will stay with the insurance company. The company will invest it, and earn more from it. They set their actuarial table and premium rates so that they can pay claims and still make a profit.

Answer 6

in answer to yr first question if u take out a 300,000 whole of life policy u pay the premiums till u die and yr beneficiary receives the money whatever age u die.  the premiums will be fixed when u take the policy and as long as they are up to date then there will be no problem. there may be some exclusions u should check the policy wording, like suicide or for example if u say u dont drink but then die of alcohol related illness so check carefully and make sure u answer questions truthfully.   there is a cash in value on the policy after a certain number of years if u wanted to cash it in and not pay any more.  whole life policies are not the most popular, term is the  most popular as its cheaper and most people take them to cover say the life of a mortgage  the insurance companies make their money from people paying premiums and not needing to claim the insurance ie with a term life u pay the premiums for x no of years if u dont die in that time u dont get anything back despite paying the premiums. also a whole of life policy the money would be invested to get interest and also they dont bear the total cost they use reinsurance companies but it is a little more complicated than that. rest assured tho that they make plenty of money.

Answer 7

How they make money- A) About 20% of your premium goes to insurance. The other 80% is invested, by the company for themselves, and part of the earnings goes to you. Example, you pay 100 per month. 20 goes to insurance and 80 to "savings". They do not invest in CD's, bonds, or any other safe investment. They go with mutual funds earning 8% or more. They give you anywhere from 1-4% interest, after ALL commissions and fees have been distributed. We'll say they earned 8%. You get 4% added to your "savings" and they pocket the other 4% AND they get fees for investing for you. Consider this- they invest the money and earn 15% that year. You still get 4% but they receive 11% on the money you put in.

B) When you die, your fiancee WILL NOT receive the money in the "savings", the company keeps this money. She must choose between face value 300k OR cash value, which will be less.

These are the two main ways the insurance companies make their money.

She is guaranteed the 300k no matter what. Unless you died in the two year waiting period and they find out that you lied on your application. Then she would only get what has been paid in as premium.

Doesn't matter how old you are, what you die from except first two years for suicide, and regardless of how much you paid. I know someone in my office who gave apolicy  to a lady and within three months she was diagnosed with an anyeurism and died. The family received fullpayment inside a week for the face amount of the policy. That is how it works.

Answer 8

It depends on your age and health at the time you purchase life insurance. And trust me insurance companies make tons of money. My husband and I bought a term policy 10 years ago and we recently dropped it because the monthly cost tripled after 10 yrs, we are now with out life and plan on investing it instead of letting somone else draw the interest. We waisted alot of money. They should pay out as long as it's not suicide. Carefully read your terms and conditions. We were young and didn't quite understand all of it.