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The thing that I feel is relevant is: "The risk is borne by the company selling it." That risk means that they have to give you a very bad rate to cover their
by adaml_623 10y ago
The thing that I feel is relevant is: "The risk is borne by the company selling it." That risk means that they have to give you a very bad rate to cover their risk and still make a profit.
With a Tontine the risk in the return is borne by the individual who can therefore share in the upside as well as the downside.
- sokoloff 10y ago"The risk is borne by the company selling it" is true of all insurance contracts. That isn't enough to explain why people dislike annuities but buy other types of insurance.
- maxerickson 10y agoIn the US, I think it's fair to say that the typical insurance policy is required somehow or another. I guess there are lots of people that rationally purchase homeowners insurance, but there's also lots of people that purchase it as a requirement of their mortgage. Auto and medical both have lots of government rules that push people to purchase them.
- sokoloff 10y agoYes, but the compulsory liability insurance in my state is something ridiculously low (like $20K, IIRC). I carry a significant multiple of that, which is an example of buying optional insurance. Life insurance is another purchase that's typically voluntary.
- Dylan16807 10y agoDifferent kinds of risk. Normal insurance doesn't care if the stock market drops 30%. Something guaranteeing payout for decades has to buffer against that possibility.