Daft question

Person_one

I've been stuck in the house the last few days and have seen a few adverts for life insurance providers who are claiming that when you die, your family is guaranteed to get either your insured amount or all the premiums you've ever paid, whichever is greater.

How on earth do they make money? What's the business model there? Its bothering me far more than it should!

paddyandstumpy

Without knowing the product, I'd imagine not everyone claims.
Even if only 2% don't claim, that's a normal margin for most other personal lines classes.
Plus also they get to make money from investing the premiums paid. That's a common income source in the market.

Aretnap

Indeed. When you pay a life insurance premium you're not just giving the insurer a handful of cash now - you're also giving them the interest you could have earned by putting it in the bank for the next few years (not a lot at current rates, I realise) or the returns you could have made by investing it in the stock market (substantial over time). That's quite a significant amount of money, especially if the policy runs for years or decades, and is what people often overlook when they calculate the cost of insurance.

I imagine that the premiums are rather high compared with the sum assured - so unless you die quite early and get the sum assured the insurer will refund your premiums. So you are effectively giving an interest free loan to the insurer to invest how they see fit, repayable when you die.

Plus I imagine that a significant decide at some point that they can't afford the (high) premiums anymore and cancel the policy before they die - in which case I guess that they don't get any money back.

csgohan4

plus not every dies when they reach the end of their period, unless it is whole life cover, where it will cost you an arm and a leg every month

forgotmyname

Father in law had a similar policy and paid in double to what we got back, the issue was he begrudged paying it each month but if he stopped he would have got nothing.

dacouch

forgotmyname wrote: »

Father in law had a similar policy and paid in double to what we got back, the issue was he begrudged paying it each month but if he stopped he would have got nothing.

The above, plus they won't pay out until you have paid in twelve months premiums

paddyandstumpy

To be fair to the OP, they reference "whichever is greater" meaning the policy will refund premiums or pay the agreed value... so I understand the question!