The Normal Pay-Out Structures

As with any insurance product that involves life determination, it will make use of mortality tables which are basically standardized charts used to calculate the risk associated with insuring someone at a certain age. It is basically a table that is used by all insurers to ensure they get the risk balance correct and charge an appropriate premium to satisfy the risk and also make a small return.

Both term insurance and permanent insurance products use this mortality tables however you will notice that the charges for both are substantially different. Permanent life insurance is always more expensive by a factor of up to 10 times. The simple explanation for this is that term insurance products have a likelihood of paying out while with permanent insurance policies, the insurer must payout eventually. To aid with the inherent increases of premiums every year permanent life insurance products normally have a built in cash accumulation property which will enable the insurance to eventually become self sustaining after a certain number of yours of paying your premiums.

A study conducted by the insurance industry watchdog shows that there is actually a very low percentage of filing for death benefit claims for people who opt for term insurance. The number was less than 10% of those who had regularly paid premiums actually getting a benefit. This astonishingly low number isn’t because the insurance company doesn’t want to pay or is illegally withholding claims, it is simply people not actually having their insurance policies renewed when they are dying. It is very rare that within a year someone can be diagnosed with a life threatening disease and die within the same year.

This in part is basically why term insurance products are so much cheaper than permanent life insurance products. There is actually a very small likelihood that people will actually receive a death benefit. We believe however that with enough education and understanding on how insurance products work that you can still enjoy the much lower premiums available with the term insurance policy but get coverage that is at least at par with permanent insurance products.