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insured life loan

Getting a loan instead of insurance when your life ends
(+1, -1)
  [vote for,

This idea is not about insuring that you live, but rather, as in life insurance, about giving benefits to those you leave behind.

But you don't have the money to pay for life insurance. You don't have those extra $1000 to put in every month for a 1 million dollar whole-life insurance. So instead of taking a loan, getting the money and paying off the insurance slowly within 80 years while also paying the loan, you take the insured life loan for a fraction of the cost (Say $100 a month).

While you are alive you never see this "loan" money of $1000 USD a month. When you happily pass away, your relatives don't recieve a million dollars either. They do get $800 a month for 1250 months (which is a million dollars within 104 years) but if the relative dies, the insurance company stops paying.

The insurance company is paying back its debt which you are now "lending" the insurance company. So they "owe" your relative a million dollars but don't pay it directly and immediately.

The relative can insure the next in line by paying the monthly $100 fee, but the next in line will have a deduced amount of time to receive the $800 monthly payments, according to what was paid to the relative

You are paying back the loan slowly, at a much slower rate than you would if you received the full sum needed to pay for a regular whole-life insurance. It is a life insurance of sorts, which has been lent to you.

The main point here is that this debt is itself "life insured" so that if the relative dies, the insurance company would stop paying, and for insuring the relative, they deduce an amount from this insurance which will go to the next in line. The next in line will also need to continue paying. So all in all the insurance company is at very low risk, and can give you better terms than it would for a regular life insurance.

pashute, Oct 13 2021

https://en.wikipedi...g/wiki/Ponzi_scheme Possible mechanism for implementing this [pocmloc, Oct 13 2021]


       I'm struggling to understand this... (also sp. "deduct", not "deduce")
hippo, Oct 13 2021

       Yes the insurance company makes a profit, the loan company makes a profit, your heirs get a payout. The only thing apparently missing is where the money comes from. We need a spreadsheet to see how this might operate and to spot who is losing big time at everyone else's gain.
pocmloc, Oct 13 2021

       I think it's an annuity that pays out in the event of your death and then only while the beneficiary is alive. So the provider will make money from those policies where the beneficiary dies shortly after the death of the insured but lose money where the beneficiary dies many decades later. So the premium will have to take into account the age and lifestyle of the insured *and* the beneficiary. Having the annuity cease when the beneficiary dies might make the premium slightly less than a regular policy but I suspect not much cheaper. If half of these policies end up paying out for decades after the death of the insured (who may die shortly after the policy is taken out) that money has to come from somewhere.
hippo, Oct 13 2021

       But how does the loan thing fit in? The loan means that you pay less in now, but the loan has to be paid back with interest later out of the annuity payments. So is there some kind of interest rate / stock market returns kind of arbitrage? And if so how much does it increase the annuity returns compared with a standard annuity?
pocmloc, Oct 13 2021

       //but the loan has to be paid back with interest later out of the annuity payments// - like a financial equivalent of a perpetual motion machine!
hippo, Oct 13 2021

       //in the long run successful insurance companies come out ahead// And so too do successful loan companies. Hence my question about where the funds input are sourced from.
pocmloc, Oct 13 2021


       totally stealin it   

       I think you are over-complicating this with the thing about a loan, but I think the end result is something useful and quite easily bakable. [+] It is a better integrated combination of a term life insurance policy that is set up to automatically buy a lifetime annuity. It could be quite helpful in a situation where a parent is caring for a disabled child and wants funds available to care for the child once the parent dies. If the parent dies young, the annuity will be quite expensive, requiring a large life insurance payout, but over time, the cost of the annuity will decrease, so the payout needed from life insurance will decrease.   

       Generally, term life insurance has a constant payment and a decreasing payout as the likelihood if dying increases (though particular plans may have constant payout for some year in the beginning and increasing premiums at the end). The cost of a lifetime annuity (one that continues to pay until the beneficiary dies) decreases as beneficiary ages.   

       Currently, a beneficiary of a life insurance policy often has a choice to receive a lifetime annuity instead of a lump sum, but the problem is that the rate that the life insurance payout is decreasing over the years doesn't necessarily match the rate that the cost of the annuity is decreasing, and the initial cost of an annuity can change from year to year, so it's hard to choose the right size for the insurance policy.   

       But it should be no problem for the actuaries at the insurance company to work out the probabilities and find the appropriate yearly payment to account for both the age of the insured and the age of the beneficiary. That way the person buying the insurance has a constant predetermined payment until they die, and the beneficiary receives a constant predetermined payout until they die (possibly adjusted for inflation or cost of living if that option is selected).
scad mientist, Oct 14 2021

       I was going to post an idea for a "Ponzi Pension Scheme" where your pension comes not from payments you have made into a 'pension pot', but on payments being made from new enrolees, just like a classic ponzi scheme - and then I realised that this is exactly how state pension schemes work...
hippo, Oct 14 2021

       Its also how the money supply in general works, in terms of how the majority of money that most of us have and spend, being bank credit (numbers on your bank statement) rather than notes and coins. You take a loan out to buy a house or car, this generates money. You pay it back with interest. Where does the interest come from? Money you earn. Where does that ultimately come from? Loans that other people take out to buy their own houses or cars.
pocmloc, Oct 14 2021

       patsies, chumps, and saps. I think that's all of them.
Voice, Oct 21 2021


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