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Originally Posted by Cynthetiq
not many people have life insurance, if they do it's just a term policy, and those generally don't pay out since most people survive the term.
whole life is expensive and while it pays out it is also an investment vehicle for some.
AD&D (accidental death & dismemberment) only applies if you buy it or covered by it via your employer and that also doesn't happen often compared to the premiums.
jazz, please correct my assumptions of what I believe I know and understand of insurance.
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No, you've got the basics right.
Term life is basically straight up gambling. The life insurance companies know down to the month how long an average person in your demograpics should live. They're gambling that you won't die before then. And they're going to take your premiums and invest them in as high a yield as they can find. There are folks who paid more in premiums than the survivors get paid, especially if they're not very bright about how they bought their coverage.
Really, the money comes from having lots of people buying. A few of them will die, and the company will have to pay off there, but if they've done their underwriting correctly, that will only be about 50-75% of the premium. They take the remainder and grow it as much as they can. We can talk about reinsurance and make this a lot more complicated, but I bet I've derailed this enough now.
You should recheck your ads. For $20/year, you're usually getting a limit in the tens of thousands of dollars. Usually about $20,000 since that's a minimum used a lot. I have a $1M term policy that I pay about $500/year for.