It's a sentiment many people quietly share but rarely say out loud: "I keep paying for life insurance, and the insurance companies seem to be the only ones winning." The short clip from Insurance Hour—featuring host Karl Susman's tongue-in-cheek remark, "Are you getting sick and tired of paying for life insurance only to see the insurance company making more and more money? Well, then just die."—was clearly meant as satire.
But behind the dark humor lies a valid question worth unpacking: how does life insurance really work, who benefits from it, and why does it seem like insurance companies always win?
In this post, we'll go beyond the punchline to explore the economics, psychology, and purpose of life insurance—why it exists, how it's priced, and what consumers can do to make sure they're not on the losing end of the equation.
Let's start with the uncomfortable truth: life insurance companies are designed to make money. They're not charities; they're businesses built on actuarial science and financial modeling that forecast risk across large populations.
Every time you pay a premium, you're essentially contributing to a shared pool. From that pool, insurers pay out death benefits to beneficiaries of policyholders who pass away while the policy is active. The goal for the insurer is simple—collect more in premiums and investment income than they pay out in claims.
That's not greed; it's risk management. Without that structure, the system wouldn't be sustainable. If every policyholder received back more than they paid in, the insurer would collapse. The "profit" is what allows insurers to continue paying out large sums when tragedy strikes.
Insurance operates on a mathematical principle called the law of large numbers. The larger the pool of insured individuals, the more predictable the overall mortality rate becomes.
In the case of life insurance, companies employ actuaries—specialists who analyze statistics about age, health, gender, lifestyle, and family history—to estimate how long policyholders are likely to live. From there, they price policies to balance the cost of risk versus expected return.
This means for every 100,000 policyholders who buy a 20-year term policy, the insurer knows, statistically, how many will pass away before the policy expires. The rest will outlive the term—meaning the insurer collects their premiums and pays nothing back.
That's why life insurance often feels like a losing bet. But it's not designed as an investment—it's designed as protection. You're not buying it because you plan to "win"; you're buying it so your loved ones don't "lose" if something happens to you.
