How does that work? Considering you would have to live for 1,389 years for them to make a profit, do they make money on... interest?

Because the odds of a healthy 30 year old dying in the next 20 years are slim, they can collect $30/mo from lots of guys like me and pay out to the very few who die in that term.

And, yes, they likely make money on that money while it's not being paid out.

Here is an actuarial table that lays out the likelihood of dying and how long you're expected to live at every age.

http://www.ssa.gov/OACT/STATS/table4c6.html

So, say they collect $7200 from each healthy 30 year old male (when they signed up) over the 20 year term. They just need 70 people to sign up in order to pay out one $500K benefit. Many fewer than 1 in 70 people who sign up will die during the term.

I guess I was assuming it went from 30-Death instead of 30-50. Do the rates start to rise once you reach 50? Or do you have to buy a new plan, because you only buy them in 20 year increments?

Yes. A policy that covers you into old age costs WAY more. But by that point you hope your dependents are financially established.

It works because when you die it costs them way less than $500k to dispute the situation and avoid paying you anything.

Does this happen often? It doesn't appear to be a common issue.