A Reflection upon Life Insurance

· Financial

May the life insurance industry not become angry with me: these are mere reflections, and I am not against that industry, whatever this article might imply to the contrary.  As any normal person exercising a useful, if not necessary amount of precaution, I would like to be protected against fire, theft, bad health, and accidents; and leave something for my wife upon my demise. The last clause of the sentence just written should prove that I cannot be against life insurance.  The other types just mentioned might just help prolong my life, and this consideration should make the monthly payments more palatable.

That said, what I propose to do, is to offer the argument – to be refuted later on – that life insurance discriminates against the poor.  But first, to help allay any doubts as to my position, the reader is reminded of my defence given through my words in the first paragraph. Now comes the argument against it, which is to be followed by a rebuttable, rather in the mode used by Thomists.

So here are my negative reflections – low-level considerations worthy of bad political thinking or social policy.  The poor, in general, live fewer years than the rich.  Decreased longevity implies higher insurance rates for the poorer person of the same age as a rich one.  Thus, if the former by any chance chose a policy which would pay out the same amount to that insuree as to the latter, it will most likely be detrimental in the event that by some unfortunate action, the beneficiary had died before a new name could be put in that beneficiary’s place.  Worse yet would be the situation where the beneficiary died under the same circumstances.  This argument should easily seem rather specious, but there is a more common situation – when banks offer life insurance together with an account at their institution, without even asking who the beneficiary is to be. I suspect it is the bank itself.  I have quickly let a now disappeared bank reimburse me for this unwanted benefit.

More to the point, let us imagine the same two individuals as suggested above, that is one rich, one poor, and both paying the same premium.  The rich person dies first, and the beneficiary gets the money.  The poorer person continues paying, and has thus contributed to the rich “companion’s” designated recipient of the moneys involved.

Why is it that some poor person can wind up paying for the richer one, when the latter had a longer life expectancy, and a higher income?  (If my argument, without the rebuttal, seems a bit twisted, it is because I have had to substitute something for a completely unreasonable thesis that the poor pay for the rich in general, in the life insurance industry.  This is patently false.)

To refute the first argument, we remind the reader that we have already admitted to its specious character.  Now the explanation for this – the odds of the poor person opting for a policy the same as a rich one implies that there is a gamble on the former’s lifetime in favor of the beneficiary, or that the rich one intends to – in all likelihood – offer a pittance to the heir involved in the latter’s case.  However, we deem this situation as unlikely.  At any rate, both are getting what they paid for in a transparent agreement, we trust.  One rich person’s desire to pay little will not affect the industry as a whole.  As for the banks, here we must take them to task, if they have acted in bad faith, which was not necessarily the case (it was, in mine – and a string of mistakes has led to its being completely taken over).  In that case, we could also question the motives of insurance company with which the bank was dealing. Here, definitely, the bank probably made the same monthly deductions on the accounts of the rich as of the poor, but I cannot swear by this.

As for the rich person dying first, and the poor survivor’s continuing contributions to the kitty, this is irrelevant.  Actuarial tables are made which determine an average life span.  In a way, one who buys life insurance gambles to exceed that average.  That is what happens when one buys a policy voluntarily.  And here, it must be pointed out, I have heard that the executives of a certain well-known American company die at the age of 63, which is below the average age.  This blows a big hole into the argument about the rich necessarily impacting negatively upon the poor, so in this scenario, roles are potentially reversed.  Overall, everyone gets what they pay for.

At any rate, there are various types of life insurance, and it would be necessary to make a more detailed analysis of the types we are arguing about.  However, we are only interested in refuting the bald lie in the contention that the poor help support the rich.  Obviously, the latter can more easily buy a nice lump-sum policy, while the poor cannot.  However, consider how much was disbursed in order to get such a policy.  One web page mentions a minimum of 5 thousand dollars, but we can bank on it, that the rich, if interested in such an option, would opt for a much higher amount.  In that sense, it is similar to a progressive income tax, and thus, it cannot be argued that it hurts the poor.

The life insurance industry serves the beneficiaries of deceased individuals, who cared enough about someone, to buy that protection.  It is of no help to the insured, only to a loved one. I would not say that not to buy such an insurance shows, necessarily, a lack of such love (it may be enough to have an estate to leave), but to argue against the industry suggests an argument against charity.

May 26, 2019.

© 2019, Paul Karl Moeller

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