Seniors. Life insurance is a bet you will die.

Insurance companies bet you will live. Do you wish to bet you will die?

When you purchase life insurance, you bet you will die and the insurance company bets you will live. That is in fact how insurance premiums are calculated. Your insurance premiums are your bet. The only way you can win your bet is too die.

For example, your premiums might be $3,000 per year for $100,000 of life insurance. If you die the first year, you are a big winner. You have invested $3K and won $100K. Of course, you are not around to spend it, only your family is. However, if you live long enough and pay enough premiums, the insurance company wins.

They win if you live. They want you to live, to continue to pay premiums so they can invest your cash. What if after 30 years, you have paid the insurance company $90K, and then you die. They pay your survivors $100K. You win right? No you lose, because your $90K invested with only mediocre returns, over 30 years, is likely worth more than $200K. So if you die, you still lose. The only way you win your insurance bet is to die as soon as possible after you buy life insurance, in fact, the sooner you die the more you win.

Recently, I received an email insurance offer from the AARP. I made some calculations to determine the value of the bet. They gave me the following offer: $50,000 life insurance for $150 per month. Insurance runs until I am 80. I am 67 now. No guarantee on the annual premiums after 80. They are betting I will live past 80. At 80, I will have paid them 13 years @ $1,800 per year equals $23,400. With a reasonable investment return to them, my payments, when I am 80, will equal approximately $35,000. If I died at 80, they will have lost $15,000 ($50K minus $35K). Since they are not in the business of losing money, they are betting that most people in my age bracket will live past 80 and then they make a fortune. Why? Because they will have my $35K forever. They will never have to pay me a cent.

Why, Mr. Bob does this make you feel good you ask? They are betting to win. They win if I live past 80. They are telling me it is likely I will live past 80. I turned the AARP insurance down because I never bet against myself. Am I wrong?

When you get life insurance offers make some calculations to see what the bet is. It might make your day. However, when your one year premiums are greater than the life insurance value, it may be time to stay home in bed.