Insightful question received from a reader…

Q

I would love to buy life insurance but I have one concern. If insurers cover you until you are 100 years old, there’s a 100% chance the insurance company will have to pay you the amount you are covered for.

I have put together a spreadsheet with a $30/month payment and interest at 8% pa. I could not save even $250,000 in 50 years, whereas if I die, the insurance company would have to pay out $420,000 – the amount I covered myself for.

What am I missing here?  How come the insurance companies don’t go broke?

Thanks, Roxanne.

A

Thanks for this Roxanne.

There are a few things that you haven’t factored into your spreadsheet.

Firstly, a life insurance policy that covers you until you are 100 years old would have a monthly premium that increases each year.  This annual price increase takes into account the fact that your risk of dying increases each year, as you age. In the first year you may be paying $30/month but after say 20 years you would be paying something like $200/month. So you’ll need to factor this annual increase into your spreadsheet numbers.

Secondly, a large proportion of people taking out life insurance cancel their policy long before they die.  Life insurance is like car insurance in some ways… you only need car insurance while you have a car. Once you sell your car, you can stop paying the insurance and cancel your policy.

Most people don’t continue with their policy past age 75. Besides the fact that it gets very expensive, the purpose of life insurance is to financially protect those people that are dependent on you. By the time you are 60 or 70, most people don’t have financial dependants – their children generally have their own income. So they no longer need the insurance and they stop paying.

That’s insurance for you… collecting premiums from the many, only to end up paying the few.

Great business:-)

Movember is an annual, month-long celebration of the moustache, highlighting men’s health issues, specifically prostate cancer and depression in men.

Who can we blame for this initiative?

Look no further than the Movember Foundation – a global not-for-profit, charitable organisation which runs this Movember celebration of men’s health.

For the record, the idea for Movember came about in 2003 when a few mates having a beer in a Melbourne pub recognised that men were lacking a way to adequately promote men’s health and came up with the idea to bring the moustache back for one month, and in doing so, have some fun, raise money and hopefully encourage men to talk about their health.

So why are we talking about Movember on a life insurance blog???

Because we in the life insurance business are impacted by the very health issues highlighted by this initiative – particularly prostate cancer.

Did you know?…

• Prostate cancer is the most common cause of cancer-related death in men (3.8%) behind lung cancer (6.1%) and bowel cancer (4%)
• In NZ, around 2000 to 3000 men are diagnosed with prostate cancer each year.
• There are generally no early warning symptoms for prostate cancer
• All men over the age of 50 are at risk of prostate cancer and should be tested annually
• If you have a history of prostate cancer in your family you should have tests from age 40
• Prostate cancer is curable if detected and treated early
• Men are not bullet proof. (Yep, it’s true… men get cancer too)
• You can get a Cancer Cover policy online that pays you a lump sum up to $250,000 if you’re diagnosed with cancer.