1

Consider a life insurance contract designed for independent workers who have little salary and are afraid to lose their retirement opportunity: for example, they will always be obliged to work even after age 64 in order to get money. So the proposed insurance product will help them to not lose this retirement opportunity.

We all know that both insurer and the insured face a lot of risks. For example (1) the incapability of the insured to pay his monthly premiums; (2) the insurer bankruptcy; (3) a fault declaration of the insured when signing the contract; (4) the actual economic situation (due to covid-19) which render people afraid to invest their money..

I would like to discover more about real/important risks in the aforementioned life insurance contract. I would love to take your opinions about:

  • What are the risks that the insurer face when selling the product?
  • What are the risks that the insured face by signing an insurance contract?

Any help will be very appreciated.

5
  • It's possible this question should be on the Economics site. (TBH I do not totally understand the question, anyways.) – Fattie Jan 30 at 15:02
  • Hi @Fattie I just want to know the risks that face the insurer and the insured in a life insurance contract. – Christina Jan 30 at 15:23
  • How is this product different than existing term life/disability insurance products? – D Stanley Jan 30 at 15:25
  • @DStanley it is in fact intended to independent workers who have small salary output and have the risk to work even after age 64. – Christina Jan 30 at 15:55
  • 1
    Okay, but life insurance pays out when you die. This sounds like some sort of disability insurance or annuity. Without knowing the details, there' no way to know the risks on either side. – D Stanley Jan 30 at 16:57
1

So the proposed insurance product will help them to not lose this retirement opportunity.

I think you are talking about a whole life insurance. This product combines insurance against the risk of death with a retirement savings vehicle.

What are the risks that the insurer face when buying the product?

I think you mean "selling" here. The insures sells the product, the insured buys it. There is very little risk for the insurer. In fact insurance love to sell whole life since it's very profitable for them. The death risk is easily managed with statistics over a large enough pool of insured people. The savings part is great for the insurance since the effective rate to the client is typically abysmal. If the insured goes bankrupt and stops paying the premiums, the insurance simply cancel the policy and does a meager payout of the accumulated money.

What are the risks that the insured face by signing an insurance contract?

Financially its a very bad decision since the rate of return of whole life insurance is often terrible. There is absolutely no reason to mingle retirement savings with death risk management. Get a term life insurance for the latter and there are plenty of good options for the former, many of which offer tax advantages so the government helps saving.

1
  • Thank you for your answer:) I agree with you about the first and I guess that what we call "risk pooling". But I don't agree a lot about your last paragraph. – Christina Jan 30 at 19:59

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.