Where's The Profit In That?

A listener to Dave's show doesn't know the difference between life insurance and cancer insurance making a profit from your payments.

QUESTION: Listener asks how term life insurance is different from cancer insurance in terms of the company making a profit off of your payments. Dave explains the real purpose of insurance.

ANSWER: Many things, you can self-insure through. You cannot self-insure through the earning potential of loss of life unless you have enough cash. If you have a million dollars in mutual funds, and that’s enough to take care of your family then your need to have life insurance is gone as well. You may still want to do it, but at that point it’s a luxury, not a financial planning issue where you need to transfer risk. A 32-year-old couple with a mortgage and 3 kids that is fighting its way out of debt; the wife can’t afford to pay the bills if the husband dies, and many times the husband can’t if the wife dies. You’ve got to transfer risk in that case because you can’t self-insure through it. For something like an extended warranty on a car … you can just pay for what an extended warranty covers. Same thing with prepaid legal insurance. With cancer insurance, that is covered by health insurance.