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I have bought a term insurance plan for 35 years. I pay yearly premiums, and will do so for a long time if everything goes well.

My question is, what will happen if say after 20 years the company shuts down?

What will happen to all the premiums which i have paid.

Thanks.

  • Have you had a policy for 35 years, or have you just purchased a 35 year policy? – mhoran_psprep May 27 '14 at 10:14
  • I have purchased a policy for 35 years. – SahuKahn May 27 '14 at 10:34
  • Does your premium (i) stay the same for 35 years, or (ii) increase year after year according to a fixed schedule that is stated in the policy, or (iii) will increase year after year according to some rate (e.g. inflation rate, prime lending rate/Interbank rate/LIBOR etc, or (iv) will be specified annually? In case of (i), you are overpaying for life insurance in the earlier years (and underpaying in later years with the earnings from earlier overpayments being used for the difference). In this last case, the insurance company owes you money. – Dilip Sarwate May 27 '14 at 11:55
  • The premium stays the same. When you say i am overpaying in the initial years, and underpaying in the later years, is this based on the premise of being more at risk in old age? – SahuKahn May 27 '14 at 15:28
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    Yes, for any given policy face value, the annual premium for an older person is larger than than for a younger person (assuming health is similar: a young smoker will have higher premiums than a young nonsmoker as well as for a somewhat older nonsmoker. When you opt for a level premium multi-year policy, it is structured so that in earlier years you are paying more than you would for a single-year policy, and in later years you are paying less than what you would pay for a single-year policy. – Dilip Sarwate May 27 '14 at 19:13
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This depends on the jurisdiction, but such companies are typically subject to regulations (and audits) that require them to keep the customers' accumulated premiums very strictly separated from the company's own assets, liabilities and expenses. Additionally, they are typically only allowed to invest the capital in very safe things like government bonds.

So, unless something truly catastrophic happens (like the US government defaulting on its bonds) or people in the company break the regulations (which would invovle all kinds of serious crimes and require complicity or complete failure of the auditors), your premiums and the contractual obligation to you would still be there, and would be absorbed by a different insurance company that takes over the defunct company's business.

Realistically, what all this means is that insurance companies never go bankrupt; if they do badly, they are typically bought up by a competitor long before things get that bad.

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