....Whole life insurance (and variable)
is something entirely different.
The risk of you triggering the benefit
is 100% (assuming policy kept in force).
How can that be? Well, the premium
has to be significantly more (usually
around 10 times more) than term life
insurance for smaller amounts.
Here, the carrier is estimating that
they can take the 10 times premium
(let's say $150 per person for our above
example) and make enough money investing
that amount to pay out for everyone in
the group at a lesser amount. They
are essentially investing with your
money hoping to earn off this "float"
before needing to payout death benefits.
They also plan to pay your death
benefits with future money which is
worth much less (due to inflation, $1
today might be worth 60 cents 10 years
from now and 20 cents 20 years from
now). You're not
insurance to have money invested.
You are buying life insurance to protect
against a risk.
equivalent to purchasing health
insurance to cover 100% of all expenses
(no copays, no deductibles, and no
co-insurance). The cost for such a
plan would be so high that it would
quickly price itself out of the market.
This is why we have the constant
movement towards higher deductible and
more cost sharing. Covering 100%
of the risk of death just isn't cost
effective which leads us to our next