h a l f b a k e r yYeah, I wish it made more sense too.
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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.
https://en.wikipedi...g/wiki/Ponzi_scheme
Possible mechanism for implementing this [pocmloc, Oct 13 2021]
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Annotation:
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I'm struggling to understand this... (also sp. "deduct",
not "deduce") |
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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. |
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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. |
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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? |
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//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! |
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//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. |
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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. |
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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. |
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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. |
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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). |
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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... |
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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. |
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patsies, chumps, and saps. I think that's all of them. |
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