In the UK these are called life assurance policies. Assurance, because the event (death) will assuredly happen. You pay a fixed annual sum every year; the insurance company pays out a lump sum when you die. It is a combination of insurance and investment.
Insurance, because the death payout happens even if you don’t live long enough for your payments to cover the lump sum. Investment, because if you live long enough the final payment is funded by what you put in, plus the proceeds of the insurance company’s investments, minus their charges—part of which is the cost of early payouts to less fortunate people.
Some versions have a maturity date: if you’re still alive then, you collect the lump sum yourself and the policy terminates. At that point the lump sum will be less that what you could have made by investing those payments yourself. The difference is what you are paying in order to protect against dying early.
As always, remember that investments may plummet as well as fall.
How does the insurer hope to make a profit, given that they’re probably betting on death being inevitable?
In the UK these are called life assurance policies. Assurance, because the event (death) will assuredly happen. You pay a fixed annual sum every year; the insurance company pays out a lump sum when you die. It is a combination of insurance and investment. Insurance, because the death payout happens even if you don’t live long enough for your payments to cover the lump sum. Investment, because if you live long enough the final payment is funded by what you put in, plus the proceeds of the insurance company’s investments, minus their charges—part of which is the cost of early payouts to less fortunate people.
Some versions have a maturity date: if you’re still alive then, you collect the lump sum yourself and the policy terminates. At that point the lump sum will be less that what you could have made by investing those payments yourself. The difference is what you are paying in order to protect against dying early.
As always, remember that investments may plummet as well as fall.
AngryParsley did a good job summing it up below.
1) While death is inevitable, payout is not.
2) Investment income.
3) Inflation eroding the true cost of the payout.