Insurance Understood: Behind the 8-ball?
By Medicine Hat News on April 14, 2018.
I love playing pool. When I was a kid, my best friend had a pool table. It was a challenging game and we were always amazed when we actually sunk a ball that we had planned. Over time we did improve and could call our shots. However, there was always one fear of getting behind the eight ball. The reason was because when you hit the eight ball before your intended ball then you were penalized and thus set back in your game of trying to sink all the balls first. Well this makes me think of insurance and the eight balls of life can affect your life expectancy (mortality). A small warning that I may get a little nerdy today. One eight ball of life is debt. Most have been taught to avoid debt. Yet, many people have to take on debt when going to school, purchasing a home, business etc. When you apply for life insurance the company asks you many questions and some of them pertain to your finances. Insurance companies are really in the business of understanding statistics and their relationships to life expectancy. Therefore, they collect, retain and analyze the information that we provide on our applications. With technological advances and sheer volume they are starting to obtain what is called big data. There are now getting a to a tipping point that they have enough data to make accurate assumptions about life expectancy based upon answers from your application. I was at a conference a few months ago where they shared a recent finding about the relationship of life expectancy and debt. Carrying debt over a long period of time affected life expectancy by nearly five years. Although it has taken us this long to make the statistical connection many of us have heard it all of our life to pay down debt quickly. Another relationship to life expectancy is the effects of a negative wealth shock, another insurance eight ball. Negative wealth shock is a loss of 75 per cent or more of total net worth over a two-year period, or asset poverty, defined as zero negative total net worth. Recently, a 20-year study recently completed that looked into this and discovered that a negative wealth shock did have an impact on life expectancy. Such a shock can have a significant mental health toll. Additionally, there will be less financial resources for health-related expenses. I am sure there are more outcomes from this study as well. Overall, I know that the above eight balls of debt and negative wealth shock are things that people try to avoid. I hope that what I shared today gives you greater perspective into insurance and how insurance companies are forming their decisions. Steve Meldrum B.Mgt. CFP CLU is the founder of Swell Private Wealth Ltd. For over a decade he has specialized in helping individuals and businesses expand protect and perpetuate their wealth. For further information or tailored advice, contact him at 403-487-0490, steve@swellwealth.com or connect on social media. 6-5
