We all know how insurance work, especially life insurance. Some might despise it, some will always favor it, and most will perceive life insurance companies as the company that sell only life insurance products. Yes, it is true to a certain extend. However most people have overlooked or unaware that the life insurance company does provide one of the safest, almost risk free investment plans for you to grow your wealth whilst providing you with additional Life Insurance coverages should anything is to happen when you are enjoying the returns from the investment. Of course, one need to understand how each company run their business in order to understand where they make their profit from. You wouldn’t want to invest your money in companies that doesn’t have a good business profit model, or companies that didn’t do as well from their previous track records.
Therefore, one must understand how a company profited from their business and how we can leverage(take advantage) off their profitable business model, thus allowing you to grow your wealth while you’re sleeping, playing or working. Before i go into the 3 reasons why growing your wealth through the life insurance company is one investment everyone should make, let me explain in detail how life insurance companies love their profitable business model. Life insurance companies love their profitable business model of “probability” because it is a “sure-win” game. Just like gambling in the casino. The chances of one winning the lottery or jackpot is so slim compared to the amount of people betting by putting their money in. It is a no-brainer that casinos make lots of profit by collecting a lot of money but paying only ONCE IN A-WHILE. This works similarly with life insurance companies. They collect lots of premium(fees for insurance coverages) but pays very rarely and little out. Here are the 3 reasons why you need to invest in the life insurance company to grow your wealth.
Underwriting income is derived from the difference between how much money is collected for all policies sold versus how much money is paid out in insurance claims for those policies in any given time period. Unlike many other types of businesses, insurance companies collect huge sums of cash throughout the year and may not have to pay on claims on those policies for many years.
This unique situation allows insurance companies to invest that money while it’s not being used. Huge profits can be reaped as a result. This is exactly why Warren Buffet formed the Berkshire Hathaway Insurance Company…so he could generate capital to invest in the stock market.
Finally, there is another way that insurance companies win as well. It has to do with something called a “lapse.” A lapse is when a policy expires without a death benefit being paid. This can mean the end of the term of a policy or more specifically, when people abandon their policies because they no longer can afford to pay the premiums. The company gets all the premiums and makes no payout. Since the abandonment occurs before the end of the policy, it is a huge statistical win for the insurance company. According to industry experts, only 2-3% of term policies actually pay out; the remainder lapse because the insured outlives the term or cancel (or simply stop paying for) a policy they can’t afford. Life Insurance,One Of The Oldest Business Founded In London In 1706 The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir Thomas Allen.The first plan of life insurance was that each member paid a fixed annual payment per share on from one to three shares with consideration to age of the members being twelve to fifty-five. At the end of the year a portion of the “amicable contribution” was divided among the wives and children of deceased members and it was in proportion to the amount of shares the heirs owned. Amicable Society started with 2000 members. As is evident, the insurance companies are doing just fine. Now these are compelling reasons how Life Insurance companies make huge profits. And leveraging on their profitable business model will enable you to grow your wealth while you sleep, play, and work. However, there are multiple investment products one can invest in the Life Insurance company. Check out which suits you in my next article here.