# Module 1: Introduction to Life Insurance and Retirement Savings

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### Term Life Insurance and Death Probability

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I'm thinking about getting a life insurance
because I have a mortgage,
and I have a young son and another baby on the way.
So if anything were to happen to me
I want them to at least be able to
pay off the mortgage,
and then maybe have some money left over for college
and to live and whatever else.
and so I went to the insurance company
and said that I want to get a 1 million dollar policy.
I am actually getting a term life policy.
I just care about the next 20 years,
after those 20 years,
hopefully I can pay off my mortgage
and have money saved up,
and hopefully my kids would have at least gotten to college
or I have saved up enough for college.
That's why I'm doing term life policy.
Other option is to do whole life policy
where you can pay a certain amount per year
for the rest of your life,
at any point you die,
you get the million dollars.
At term life I pay 500 dollars per year for 20 years
If any point over those 20 years I die,
my family gets a million.
At the 21st year I have to get a new policy,
because I' m older and have a higher chance of dying in that point.
then it is probably going to be more expensive
for me to get an insurance.
But I am really just worried about next 20 years.
But what I want to do in this video is to think about
giving to these numbers
that have been quoted to me by the insurance company
what do they think that my odds of dying are
over the next 20 years.
I want to think of the probabilty
of Sal's death in 20 years
based on what the people in insurance company are telling me
or at least what's the maximum probability of my death
in order for them to make money.
what's the total premiums they're getting
over the life of this policy
divided by how much they are insuring me for.
So they are getting 500 dollars times 20 years
is equal to 10 000 dollars
over the life of this policy.
They are insuring me for 1 million dollars.
So they're getting,
let's see those zeros cancel out, this zero cancels out,
they're getting,
over the life of the policy,
for every 100 dollars in insurance.
Or another way to think about it is,
let's say that there were 100 Sals
a hundred 34-year-olds,
looking for 20 year term life insurance
and they insured all of them.
If you multiply this by a 100
you would get 100 dollars in premiums.
This is the case where you have 100 Sals,
100 people who are pretty similar to me,
100 Sals.
They will get 100 dollars in premium.
The only way they could make money is if
at most one of those Sals were to die.
Break even if only one Sal dies.
So one way to think is
they get 1 dollar in premium for 100 dollars insurance
or if they had 100 Sals
they get 100 dollars in premium
and the only way they would break even
is if only one of those Sal's dies.
So what they're really saying is that
the only way they can break even
is if the probability of Sal dying in the next 20 years
is less than or equal to 1/100.
And this is an insurance company,
they're trying to make money.
So they are probably giving these numbers
because they think that
the probablity of me dying is good,
maybe is 1/200, or is 1/300,
something lower,
so that they could insure more Sals
for every 100 dollar premium they have to pay up.
But either way
it is the back of the envelope of thinking about it.
It actually makes me feel a little bit better
because 1/100 over the next 20 years isn't too bad.