You’re Not* Gonna Die, Don’t Buy Life Insurance
Image via Sara Fasullo/flickr
By ZACH NOBLE
I’m buying life insurance, but that’s because I’m a sucker who let Feelings trump Math.
My wife and I are in the market for term life insurance because we just had a kid, and if one of us kicked the bucket right now, the other would be up a creek financially. We both feel too guilty to take the mathematically reasonable risk, and so we will almost certainly lose money on this deal, because that’s how insurance is supposed to work: The vast majority of people pay more than they get, so the families of the minority who actually die can get paid.
But hey, my story’s kind of boring. Let’s talk about:
A Blob-like Hero/ine and Bill’s Dad
In a completely fake story posted on New York Life’s website, a mystery 23-year-old individual is inspired by a co-worker’s dad (???) to buy whole life insurance.
This individual is nameless, sexless and possibly a foreign national — all we know is that they’re 23, single and don’t have kids.
But whole life insurance isn’t just about dying, co-worker Bill tells our mannequin protagonist.
“Cash value accumulated in a permanent life insurance policy can help you pay for life’s anticipated, and perhaps unanticipated, events, such as buying your first home, education expenses or a wedding,” he says.
You know what else accumulates cash value?
CASH, which our hero/ine is about to spend on the darn life insurance policy.
Just save your money, friend! The life insurance company isn’t a charity — they’re going to make money off you, charging interest on the amounts you “borrow” from the policy!
But hey, let’s put all that hocus-pocus aside and talk about the dying side of things.
Will our hero/ine die, probably?
The helpful folks at the Centers for Disease Control and Prevention have an answer for us, and the answer is NO, BUDDY.
In the latest United States Life Tables (AKA “Let’s Count the Dead People”), the CDC breaks down exactly how unlikely it is that an American will die in any given year.
Let’s say you’re a 23-year-old American. What are the odds you die before your next birthday?
0.0919 percent. Not quite one-tenth of 1 percent.
Your odds don’t crack 0.1 percent annually until you turn 29, and they don’t reach 1 percent until you’re 63!
The CDC breaks its data down further, showing that males and black Americans tend to die sooner, while Hispanic females are apparently immortal (likely because their families hang out with them).
Remember how I said Americans don’t have a 0.1 percent chance of dying in a year until they hit 29? Well non-Hispanic white males actually reach that probability the year they turn 20. Hispanic females don’t reach it until the year they turn 43.
So back to our hero/ine.
If he’s a guy, he probably won’t die within the next year.
Data via CDC
If she’s a lady, she also probably won’t die!
Data via CDC
This matters because it’s the central point of life insurance: The big payout comes if you croak.
This means the value of the policy is (probability of death)x($policy amount).
So our hero/ine may buy a $500,000 policy, but it’s not worth half a million dollars.
It’s worth roughly $450 any given year, and it’s not even worth that amount to our hero/ine, of course; it’s worth $450 to our hero/ine’s family. Since our hero/ine is single, childless and is taking major life advice from co-workers’ parents instead of their own, I imagine their family may not be a major factor in their life.
If you care deeply about some people and those people rely on you, life insurance makes sense.
Heck, New York Life (I only picked on them because of their dumb fake story, btw) offers reasonable quotes for term life: 38 bucks a month for a healthy, non-smoking 23-year-old male. Would you look at that, that’s about $450 a year — the actual value of the policy!
(Smokers pay 800 bucks a year because haha it’s like the one thing on which companies are allowed to discriminate.)
But no matter what, insurance is insurance. It’s not an investment.
And whether you do it right (term life insurance, only during times in your life when people depend on you and your savings won’t cover them if you died) or wrong (by taking Bill’s dad’s advice and buying whole life when you have no dependents), your family almost definitely won’t gain a penny from it — guaranteed.
Zach Noble is a journalist who has covered everything from the OPM hack to a rescue dog’s retirement party. He’s been wrestling to reconcile his bleeding heart Catholicism with his pragmatic libertarianism since that freshman year love affair with Ayn Rand. He tweets erratically as @thezachnoble.