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Actuaries don’t buy whole life insurance and ILPs

In fact, they don’t buy a lot of insurance!

Actuaries are well trained professionals who help insurance companies balance the risks of insurance product versus an effective value that consumers will be willing to pay for it.

Actuaries mathematically evaluate the likelihood of events and quantify the contingent outcomes in order to minimize losses, both emotional and financial, associated with uncertain undesirable events. Since many events, such as death, cannot be avoided, it is helpful to take measures to minimize their financial impact when they occur. – Wikipedia

So what do most actuaries buy to insure themselves?

An old article in Sunday Time’s interviews Christopher Tan, CEO of Providend:

“I asked an actuary (someone who designs insurance products) who had left an insurance company what he buys for himself. Like many former actuaries I have spoken to, he said he would never buy an investment-linked plan or a whole life plan as it is just too expensive and doesn’t make sense. He has protected his family with term plans. So, if the chef doesn’t eat his own cooking, why should we?

At the simple dollar, the blogger spoke of a conversation with his friend who became an actuary for a large life insurance company

He basically told me that if I am a financially sound person, I am throwing my money away on life insurance unless I meet a few strict criteria (young, a relatively low net worth, and young children). This kind of blew me away considering he’s in the life insurance business, but when he broke it down for me, it made a lot of sense. Note that the advice that follows is based on a conversation between friends and shouldn’t be viewed as professional advice and you shouldn’t just follow it blindly without doing your own research, but it is quite interesting and worth sharing.

  • unless you are a financial train wreck, you should never buy anything but term life insurance
  • if you have no dependents and no spouse, don’t buy life insurance
  • the more net worth you have, the less insurance you need
  • think about your family’s needs carefully
  • when your policy expires, don’t renew it immediately – recalculate

The people that systematically access risks through quantitative means questions the viability of expensive insurance, probably assessing that the probability to make a claim versus how much you pay for it isn’t worth it. Why then do we do the opposite most of the time?

Reaching for higher yields–be aware what you wish for
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