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How Do Life Insurance Companies Make Money

Most people think that life insurance companies make money by taking in more money than they pay out. While that is true, what most people don’t know is that life insurance companies make money because many times, they never pay out a death benefit at all. Unfortunately many people stop paying their insurance premiums and let their policies lapse. Or, they might have a term insurance policy that they outlived, and again the life insurance company doesn’t need to pay out if the policy has expired. This is what allows life insurance companies to make a profit and have the funds to pay out when they do need to pay claims. So what can you do to make sure your policy doesn’t lapse?

Life Insurance

Tips to make sure your life insurance policy doesn’t lapse:

  • First, make sure that when you buy a policy, the premium you take on is not outside of your comfort zone. A premium that you can afford that is within your budget is one that you are much more likely to keep in the future.
  • If you own a term policy consider converting at least some of it to a permanent policy. This way you will have some insurance that will always last and can be used for final expenses such as burial costs, to pay off debt, or just some money to leave behind for your kids or favorite charity.
  • Another option is to have someone else pay for your policy. For example, if you are getting older and you can’t afford premiums, your children might have an interest in making sure you keep your policy, since they are the beneficiaries. Discuss your policy with your kids and perhaps your children will consider paying your premiums.
  • Lastly, there is also something known as a life settlement. This allows you to sell your policy to a third party who will continue paying your premiums, and collect the death benefit. Rather than letting your policy lapse, you can at least get paid for selling your policy.

When buying a life insurance policy be prepared to pay for and keep it for the long haul. You are protecting your loved ones by keeping your policy in force and not letting your policy lapse like so many others who do.

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Liran Hirschkorn

Liran Hirschkorn is the founder of Chooseterm.com. His mission is to help individuals across the country in finding the best rates on life insurance as well as helping individuals with high risk life insurance.

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