If you ask a lay person on the street what life insurance is, and they’ll tell you it is a policy you buy that pays a sum of money to your family when you die. Ask them to explain how life insurance works, and they will probably tell you it is a contract between an insuring company and a policy owner. Now ask them how artificial intelligence (AI) and aging research can help life insurance firms and policy buyers make decisions with conviction, and they’ll scratch their heads and likely walk away from this conversation, or give very general answers.
And while the customers are pretty much in the dark, some of the more innovative insurance companies are building substantial internal and external capabilities in both aging research and artificial intelligence. And there are hundreds of startups with more or less credible technologies that the life insurance companies are partnering with directly or through the open innovation hubs. Some of these innovation superhubs are run by the reinsurance companies but some are run by the global insurance powerhouses such as Generali. For example, House of Insurtech Switzerland. There is a lot of progress in the field.
In this article, I suggest that the recent developments in AI and aging research are going to disrupt the traditional models of how life insurance companies operate and can help them, as well as policy owners, make better informed decisions.
Before we dive into that, however, we need to understand how life insurance really works.
The truth about life insurance and how it really works
In simple words, life insurance can be defined as a contract between an insurance company and a policy holder or buyer, where the insuring company promises to pay a certain amount of money in exchange for a premium, either upon the death of an insured individual or after a set time period.
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Before you make the decision to purchase life insurance, you will surely have lots of questions. How much will a certain policy cost? How do various life insurance policies compare with each other? Whether you should opt for a term or whole life policy? The list goes on. Unfortunately, while you may have many questions, life insurance companies on their part have only one: How long is this person (policy holder/buyer) likely to live? After all, insurance companies need to accurately assess risk and set your premium.
So before insurance companies decide to insure you or sell you a policy, they will gather lots of information about you to determine how much they’ll charge for coverage and what amount they’ll pay to the people you name as beneficiaries in your policy contract .