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The Death Calculus March 25, 2012

Posted by bobv451 in death, gummint, ideas, writing.

Pay no attention to gummint projections. Check what is being done by people with money on the line. I came across an interesting article that is just filled with stfnal ideas, yet was about the life insurance business.

Life insurance has always been a curious proposition to me. You buy the policy, betting you are going to die. The company takes the bet that you’re not going to die. In a crazy way, this seems backwards to me, but that’s the way it works (and is why Social Security is doomed–it is set up the way I’d do it–giving benefits until death rather than paying on death). Insurance companies make a lot of money if they don’t have to pay off, so their actuaries are state-of-the-art down with determining life expectancies. If we were immortal, the only death insurance would be for accidental death (sort of like insuring a 20 yr old). How much money could an insurance company make off a vampire? Over centuries?

But the older you get the less likely an insurance company ought to want to issue a life policy. Makes sense. They are more likely to pay out on an 80 yr old, hence lose money. But the business is changing to reflect increased life spans. And this isn’t chump change on the line. It is a $27 trillion business.

There are 53,000 Americans age 100 (or older!) compared with only 2,300 in 1950. That’s a 2200% increase vs only a doubling of the general population. This is why companies are willing to give a 78-yr-old woman a $20million life insurance policy (The Hartford, 2010–premium $1m a year). They figure she will live another 14.5 years because she has already outlived the “danger marker” of heart disease.

Even with stuff like coronary disease, it’s possible to get life insurance. In 1995 no company would touch you. Now they figure such things are repairable. In a way this is comforting to know that insurance companies are willing to bet you’re going to live even with serious health problems (so they can take your premium). These are better numbers than the gummint issues–those are for political consumption, not hard cash decisions but ones based on fairy gold and garnering votes.

How many ways will this inching toward immortality affect our society? Therein lies a lot of sf stories.



1. D Gary Grady - March 27, 2012

A quibble: Despite conventional wisdom, Social Security isn’t exactly “doomed.” If nothing is changed, the Trust Fund will run out of money in a quarter-century or so, but remember that Social Security has always been a pay-as-you-go system, and conservative projections are that it should be able to pay at least 70% of scheduled benefits, which means average future benefits would be comparable to those paid now after adjusting for price inflation. Given increased life expectancy, the smart thing would be to continue raising the retirement age, which makes the problem go away entirely.

bobv451 - March 27, 2012

What trust fund? SS is paid out of current revenue and has been for some time.

D Gary Grady - March 28, 2012

Social Security benefits have *always* been paid out of current revenues. (That’s why I said it’s a pay-as-you-go system.) The Trust Fund now holds over $2.6 trillion (with a T) dollars, enough to make up projected revenue shortfalls for a quarter century even under the Trustees’ rather pessimistic economic assumptions. Tiny tweaks to a few formulas would solve the remaining minor problems, and if economic growth returns to more normal levels there won’t be any problems to solve.

bobv451 - March 28, 2012

call it what you like. LBJ dumped all previously sequestered social security payments into the general fund starting in 1969 FY. Even SSA calls it a trust fund, btw. http://www.ssa.gov/OACT/ProgData/funds.html Even some wacky Nobel laureates refer to it as a trust fund. http://krugman.blogs.nytimes.com/2008/03/28/about-the-social-security-trust-fund/ [“The date at which the trust fund will run out, according to Social Security Administration projections, …”]

Interesting that this is all you got out of my comments on longevity and using such information as ideas for sf stories. You worried about your SS? I am more interested in science fiction.

D Gary Grady - March 28, 2012

Don’t believe everything you read in chain emails. The nature of the Social Security Trust Fund has not changed since it was originally introduced in the late 1930s. The only thing new in fiscal year 1969 is that Social Security revenues and payments started being listed as part of the unified budget rather than published separately. As Paul, Krugman, the Social Security Administration, and I all agree, the Trust Fund is a separate entity.

And just because this is all I had a comment about doesn’t mean I didn’t find the rest of what you wrote interesting, as I usually do. I just didn’t have anything to add!

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