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Betting on The Rapid Demise of Millionaires

Posted on January 11th, 2011

Shortly after I first met my friend and colleague, Jon, he mentioned that his mother-in-law lived with them.   Jon told me that she had been diagnosed with terminal cancer.  "How long ago was this diagnosis made?" I asked.  I'll never forget his response:

Twenty years ago!  She is tough as a lizard!

I was once again reminded of this conversation when I recently read an article  about a company that buys life insurance policies from their owners and then sells them to investors.  The company will eventually collect the death benefits and distribute the proceeds to the investors.  The company assigns a life expectancy to each of those from whom they purchase the insurance policy.  Therefore, the price the company pays for the policy is based on the nominal value of it and on the life expectancy of the seller.  But what happens when those who are insured live longer than predicted by the company's experts?  In such cases, the investors will see their returns decline. I assume that most of the people who sell their policies are wealthy given the implications in the article that these life policies are in the seven figure and above category. 

Why is it that I don't bet on the rapid demise of wealthy strangers?  Wealth and life expectancy are significantly correlated.  Even among millionaires, those with multiple millions tend to live longer than those with just one million.  My surveys and estate data from the IRS consistently show that rich people live longer than those in the general population. Also, I would have a difficult time applying mortality and actuarial estimates of life expectancy for the entire population of the U.S. to wealthy people.  (And note Jon's mother-in-law is wealthy.)  In addition, even when experts such as physicians estimated the life expectancy of each of the individuals who sold policies, more often than not they underestimated longevity.  In the article, it is pointed out that of the 1,197 policies analyzed 81.3% of the owners lived past life expectancy. 

Why is it that the rich live longer?  Genetics, possibly; that's not my area of expertise.  However I do know from my research that most millionaires are physically active, have a wide variety of interests, are part of a loving family, are not overweight, etc.  In an earlier blog,  I wrote . . . hypereating is a danger to one's physical well being. . . most millionaires eat in moderation, they are well disciplined. . . it is rare to find any millionaires whom I interviewed . . . to be overweight. . . the typical male millionaire is 5'10" tall and weights 184 pounds. . . .  In addition only 10% weigh 225 pounds or more, and most of these are 6'1" or taller.  Accordingly only 10% of women millionaires weigh 170 pounds or more, and most of these are 5'10" or taller.   Typically, she is 5'5" tall and weighs 138 pounds.

Self designated judgments by millionaires regarding their health are fairly accurate assessments of reality.  Overall 79% of millionaires categorize their physical health throughout their adult lifetime to date as consistently excellent to generally excellent.  This does vary by age.  Eighty-eight percent of those 45 or younger as opposed to 69% of those who are 70 or older categorize their health this way.  

 Finally, I feel that there is something morally wrong with investing in the insurance policies of strangers.  I prefer to read about the performance of my financial investments in the money sections of my newspapers and not in the obituaries. 

Category: Current Events
Tags: The Wall Street Journal,


This Post Has 6 Comments:

On January 12th, 2011, 5:19 PM, LT said:

I guess I'm on my way to becoming rich then! Since May 21st, 2010, I've started turning my life around by joining a low-calorie diet program. As of my weigh-in this past Tuesday, I've lost a total of 172.1 lbs. This puts me at 294 lbs currently, from a starting point of 466.1 lbs. This past August I've also started working on my finances by following Dave Ramsey's baby steps and it's going great. Next step is for me to start working on my iPhone game development project. Cheers to discipline!

On January 11th, 2011, 11:00 PM, BW said:

Interesting observations! An 'earned every penny of it' $M+ close relative just turned 88. She is more active than most 1/4 her age. About 5'2" & 110lbs. Runs the stairs for exercise, does aerobics, coupons, sale shops, hosts dinner parties & cooks it all from scratch... MEGA-disciplined in all aspects of her life & always has been!
Sound familiar?

Definitely on to something here! Yes, those who earned their wealth themselves generally got with the program from the get-go & simply MADE it HAPPEN.

On January 11th, 2011, 7:12 PM, Law Dad said:

Widogmom, money can buy the best of those things and a less dangerous work environment, but if you read Dr. Stanley's books you'll discover that most millionaires live relatively modestly (don't spend a lot on food and luxuries) and many are entreprenuers who in engage in every kind of employment.

You should also read his statistics on how many millionaires do cut their grass and do their own laundry.

Contrary to your point of a reduced lifestyle, I think many millionaires live longer because they remain active doing house and regular work.

My grandfather is 90, a deca-millionaire, and has been diagnosed with multiple "terminal" diseases since he was in his twenties (originally a kidney disease, most recently a blood cancer several years ago).

He is a hard working farmer who still mows his grass, cuts his own wood, (for their wood burning stove in the basement which saves on heating costs in the winter), and rarely goes out to eat (incidentally the only place they consistently go is the towns Pizza Hut once or twice a week).

Seems like everytime I stop by my grandparents' house he is outside doing some sort of work. I should mention they live in a ranch house that is probably worth less than 200k.

Personally I believe a strong work ethic is what helps many millionaires achieve success in their finances, health, and long lives.

On January 11th, 2011, 12:35 PM, widogmom said:

While I applaud your restraint in not profiting from the "death pool," I wonder why your article does not mention the obvious - money can buy the best food, personal trainers, health care, and the privilege of not working in dangerous, unhealthy occupations. It can also buy time to lead an active lifestyle, because somebody else is doing your laundry and cutting your grass. Surely you don't think it's all about being rich and thin.

On January 11th, 2011, 10:29 AM, Sinea Pies said:

That's it...gotta lose weight! This makes so much sense. Self-discipline and wealth go hand in hand.

On January 11th, 2011, 10:00 AM, Mark Pierce said:

Article makes sense. Bad eating habits can be symptoms of other real issues.

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