“How can life insurance pay out more than the person has put in?”

The following is my answer to a Quora question: “How can life insurance pay out more than the person has put in?”

Image for illustrative purpose only.

From an individual perspective, the insurer has paid out more than the premium if the claim was early. From the insurer’s perspective, they have paid out one claim for a single policy, but have earned from tens, even hundreds, of thousands of other policies that are still premium paying. This is the benefit of portfolio costing. Also, when insurers take in all that premium from their policyholders, they invest it out for further returns so that in the event of a spike in claims, the insurer is not financially compromised.

Terence Kenneth John Nunis

[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/06/quora-answer-how-can-life-insurance-pay.html?m=1 ]

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