What Is Modified Benefit Whole Life Insurance?
What Are Life Insurance Premiums?
Life insurance premiums are the amount you pay per month to keep your policy in force. It’s similar to the subscription fee you pay for your favorite streaming services, but with some added complexities. Unlike a streaming service, your premiums are tailored to you. Your coverage type, policy value, age, sex, and any health conditions are all factored into your cost of insurance.
Premiums are in place for an insurer to cover their liabilities, business expenses, and to invest. In the event of a policyholder’s death, the insurance company is responsible for producing the amount of their death benefit in a timely manner once a claim has been filed. The payments they collect from that policyholder and others is designed to pay off these claims to ensure beneficiaries receive the death benefit they are expecting. Premiums also go towards covering business expenses, such as employee salaries, legal fees, office space, marketing costs, and more. In addition to their own financial obligations, insurers also invest a portion of the premiums they collect to grow the value of the company and to grow the funds that pay off death benefits. Permanent life insurance policies have a built-in cash value savings component that accumulates value over time from investing a portion of the policyholders’ premiums as well.
Life insurance premiums are, in a sense, insurance for your insurance company. If you are a higher risk customer who is older and has health concerns, the company is more at risk of having to pay a death benefit. You may be thinking, “but isn’t it their job to pay death benefits?” You’re correct, but if an insurer pays too many death benefits on policyholders who have not made as many premium payments as younger adults with no health conditions, they would eventually be losing too much money to pay every death benefit. Low risk investments, or younger and healthier policyholders, will pay less because they are less of a financial risk to insurers. Term policies are also associated with lower costs because they expire, meaning your insurance company could collect premiums for 10 to 20 years and never have to pay a death benefit. If you want to learn more about what happens to term life insurance if you don’t die, you can read more here.
