Trust-Owned Life Insurance - TOLI

and finance Allah shmoop What is insurance Shmoop All right

people This is you nervous Nellie You're worried about your

house and well here is your house Your house and

Lynn carry a book value I eat what you paid

for it last year of $300,000 You realise that some

night you may hear it rumbling and it won't be

from your stomach And you'll come fully awake surfing on

your chimney at 90 miles an hour down the road

If this happens you're home will become duck Disneyland And

well it's 300,000 Dollar value will likely be worth something

close Teo zero You can stomach paying $10,000 from these

damages out of your own piggy bank to go find

a new home But you want someone else to pay

the $290,000 gap to go buy an equivalent place somewhere

else with a you know nice view of the valley

Good thing you bought term real estate insurance That is

You pay 800 bucks a month What's called a premium

in return for a Sam Schmucks insurance company being willing

to pay for a new home for you showed your

old home B You know damn well that $800 premium

you pay every month is a bet that the insurance

company is betting your house will be fine and trust

us They want your house to be fine because well

then they can keep collecting your monthly premiums almost 10

grand a year and sit on their hands In the

meantime an update their Facebook pages and the economics makes

sense Sam Schmuck insures 49 other homes just like yours

collecting 10 grand a year from each for total revenues

Sam Schmucks of 500,000 bucks a year if they had

to replace an entire home at a cost of 290,000

every year Well Sam schmuck is still profiting handsomely from

the engagement You're on the other end of the bed

Your bed in your house will not be fine Otherwise

you probably would not have gotten the insurance in the

first place You wanted to have that safety net for

your worry Well this is the stuff of insurance reducing

risk by entering a contract where one party agrees to

compensate another party in the case of specific damage or

losses in exchange for premium payments Yeah that's insurance You

pay the insurance company premiums every month and they pay

you well when you need it If you're home isn't

washed away this month well then you lose all 800

bucks premium that you've paid And Sam Schmucks Insurance Company

keeps it so you can do the math if 10

years go by and your house still hasn't been washed

away While Sam Schmuck has collected 10 years of a

10 grand per year from you and since that money

is reinvested in bonds and stocks and other investments while

Sam Schmucks earnings are compounding that is Sam's rolling in

all that premium payment money and the interest he's earning

on it invested collectively after 10 years Well if it

follows a roughly with the markets do thereabouts it'll double

or more to clarify That is 10 years of 10

grand and payments is only 100 grand Yet your home

has financial exposure to Sam Schmuck of 290 grand So

how is it that 10 years of payments totaling 100

grand can be worth 290 Well when Sam receives your

money he invested in some form of the stock and

or bond market and that money then earns a financial

return such that it grows at a nice clip And

he's presuming that your home will last at least 10

years before it gets Ah washed away to the sea

And remember he has dozens of homes He's ensuring and

all those will likely not get washed away Right So

yes we're guessing on the numbers But it's pretty reasonable

to think about numbers doubling in and changing or so

like that in every decade and change But what if

your house did wash away well After all it's in

an obviously precarious position and you just couldn't say no

to the view Could you worth the risk You told

yourself if you woke up one day to beavers as

your new neighbors Well you'd be looking to Sam Schmuck

to pay acclaim and get that insurance dough to go

buy another home But First Mister Schmuck reminds you that

you must pay the $10,000 deductible deductible is the dough

you pay first before the insurance company's money kicks in

Well this means that in a calamity you must pay

for the 1st 10,000 bucks before you see any dollars

from Sam Schmucks Insurance Company Sam Schmucks Insurance Company and

deals and all kinds of shmoop O R Insurance You've

got health insurance betting on your health continuing its life

insurance betting on you living another month car insurance button

on your car's life homeowner's insurance betting on your home's

life like that property insurance betting on your possessions and

someone when the risk makes you feel uncomfortable enough while

so much so that you're willing to pay to reduce

that risk Well somewhere out there and insurance agents Spidey

senses become engaged and they'll find you Well okay maybe

I'll type it into Google first Then they'll find you

Insurance companies stay afloat because while they're working with a

lot of data to help them make smart bets remember

every insurance policy is filled with tons of fine print

Like if you break your pinky toe it's totally covered

But the tone next to your pinky toe well that

one's eso Well insurance companies take all of that data

and crunch the numbers to make policies that are attractive

enough to get people to buy them But our waited

enough toward the insurance company is that it's worth it

for them to take that risk Ideally they'll make few

payouts and keep the premium payments rolling in But don't

worry Even insurance companies have insurance like usually other insurance

companies in a magical dance of risk sharing called reinsurance

That's why the insurance market doesn't crack into bits when

an entire city pulls in Atlantis and goes underwater Now

put your poker face on or some snorkel gear and

ask yourself What's worth the risk Is it worth it

to go skydiving without health insurance Is it worth the

risk to own a house next to a forest without

fire insurance What's worth those monthly premium payments that go

down You're draining into Sam schmucks pockets Yeah well only 00:05:13.449 --> [endTime] you can say good luck