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How does the insurer make profit on a whole life insurance plan? ?

The insurer sells you a whole life policy in which your earning cash value and interest. What are some ways that the isurer is making profit if the cash value and interest is your to use at any time?

Public Comments

1. You don't "earn interest." A whole life policy accrues a cash value against which you can BORROW or you can cash out if the policy is paid all the way to full maturity. Whole life policies are very profitable to insurance companies which is why they try to market them as "good investments." They seldom are.
2. Well, first off you have to realize insurance companies are very large and are very good with statistics. Let's say there are 1000 people who buy insurance from company X, costing them $11/yr. And if they die they get $5000. The it seems like throughout their entire lifetime that person will never pay up to $5000 in yearly payments, however if you break it down to each year it's easy to see how they make money. Every year company X makes $11,000. As long as no more than 2 people die each year then they will continue to make a profit. However, in real life insurance companies are alot more exact about how much they charge you for life insurance. If you smoke, drink, or are getting older, you insurance premiums will go up due to the fact that you have a less likely chance of surviving that year. The "interest" that they claim to give you is joke btw, you seem like its a good deal cause you getting money back, however you are better off going to an insurance company that does not give back interest, cause you will get a lower yearly rate.
3. the insurance company takes your money, and the BILLIONS of dollars it gets from other suckers, and INVESTS IT. Even if they invested in an index fund, they would always match the market. It has risen 11 percent annually for the last 70 years. Statistically, they make more with investments than they lose with payouts.
4. because allot of people who have life insurance policy never tell anyone, so when they die, no one gets the money (and the insurance compnay keep the death benefit amount) also; lots of people let insurance policies lapes, so the ins co keeps all the premium
5. If you die early on they won't make money, but considering after 10 years you're not cashing out for even what you put in that's how they're making the money. THAT doesn't make them a bad thing to have, but if you do need insurance to last until 100 years old (many people don't if they've saved properly) then consider a cheaper plan like a universal life with guaranteed premiums.
6. You're "earning" very, very little. For every $1 you put in, $.10 goes to cash value, and the policies average 2%. Over massive, massive years. So, a $10,000 investment, over 10 years, yeilds, oh, $1020. Not such a hot "return" on your $10,000. The insurer is investing that $10,000, and making, on average, about 8%. So, you get 25% of the money your money earns, they get 75% of it. Then, they talk you into borrowing your own money. Oh, but if you do, you have to pay a fee - usually $200 - AND, then you pay another 8% interest, on YOUR money, to the insurance company. Run the numbers. Whole life is MASSIVE profit for the insurance company, for every year you keep it. But most people run the numbers, and end up cancelling the policy within the first five years. For all the life insurance policies that get sold in the USA, 70% of Americans die, without active life insurance in place. They let it lapse.
7. Not all of your premium goes into your cash value account. Most of the premium is used to fund the mortality costs, administrative expenses and profit.