Life Insurance - a gamble on your life!
Insurance may be described as a hedge against life's
uncertainties. To that end, it can never be taken too
seriously. Every year, the person insuring himself bets that he
will not be living another year and the insurer is betting that
he will. If the person lives, and loses the bet, he pays the
insurer a small premium; if he dies, the insurer pays the lump
sum "jackpot" to the person's nominee. While the person taking
up the policy has only one life to bet on, his insurer is
playing the same game with millions of other people like him.
Since the insurer's risk is spread, he can offer huge odds.
Moreover, the insurer invests the premium he receives each year,
and has employees (called Actuaries or Actuarial Officers) who
calculate the odds on each policy based on mortality rates, the
mortality experience of the insurer, and the return on
investment which the insurer is likely to get. These in essence,
form the framework of determining the premiums paid by policy
holders, and the returns expected from the policies.
It is the Life Advisors of each company who are responsible for
creating the relation between the insurer and the policy holder.
He meets with the prospective policy holder, and in conjunction
with him, determines which policy would best suit his needs.
Indeed, it is through the Life Advisors that every Life
Insurance Company manages to maintain a personal relationship
with its clients.
It is the requirement of each company to constantly try and
establish an identity for itself, and to provide to its
customers, both existing and prospective, that which its
competitors can't.
In other words, to establish one or multiple Points of
Differentiation. Again, the customer for life insurance ends up
paying a rate of premium which has been determined upon data
which is sadly loaded in the insurers favor.
As stated earlier, the insurance premiums are calculated by the
insurer's actuaries after taking into account mortality rates,
and mortality experience. In many countries, especially the
poorer countries, neither private insurance companies, nor the
LIC are permitted to conduct the nationwide studies required to
determine the mortality rates.
The information is provided by the governments, for a fee, from
data taken during the Census. Since this data in itself is old,
and mortality rates have significantly decreased in the last 14
years, the customer is actually paying more premium than he
should for a life insurance policy.
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