What's Up

       For over 50 years, my grandfather earned his livelihood as a career agent for Metropolitan Life Insurance. I still recall the wall calendars his agency gave to clients, and often find myself quoting its printed sales pitch: "It's better to have it and not need it, than to need it and not have it." But that's true of almost anything utilitarian except the proverbial "white elephant." So why, when Poppy died at the age of 91, in 1989, was there no life insurance on him?

       For one thing -- and this became a real joke among our family -- Poppy believed that he would outlive everyone. . . , so why bother? Seriously, if there are no special people or causes you want to "remember" financially, then why be concerned about what happens to your estate after you're gone? And if you have an adequately-funded retirement program in place, then you also won't need to withdraw any cash value from a life insurance policy to supplement your pension or social security. And if you're not going to be borrowing any money for a new house or business, then you won't need the collateral. . . .

       But, face it, most of us just aren't all that financially secure and, at the very least, would feel better with a bit of contingency retirement planning, plus would want to make certain that our final expenses are going to be covered. And there are all those tales of woe about people who have lost the family farm to pay estate taxes; not to mention Art Modell, who, obviously, never spoke to a knowledgeable attorney or financial planner to set up an insurance trust! Yes, perhaps the most important aspect of life insurance is that it provides cash -- cold, hard, tax-free cash -- at the time most families need it most, the death of the insured, without needing to liquidate other assets at an inopportune time or distress-sale prices.

       In order to understand life insurance -- or any insurance, for that matter -- you must first appreciate the concept of risk. Insurance is essentially risk management. People called "actuaries," who are very highly skilled in the probability-statistics branch of mathematics (and whose glasses are even thicker than the CPA's writing footnotes for corporate balance sheets), calculate the odds that a particular event will or will not take place within a given time frame and under a given set of circumstances. For example, when you pay your automobile insurance for this year, what are the factors taken into account to establish your rate of payment? For how much money will the insurance company be "at risk" if you are involved in an accident (especially if you are at fault) or if your car is stolen, and what is the likelihood of those situations occuring? Your age, your grades (for a student, a measure of maturity or responsibility!), your driving record, the safety features of the vehicle, the relative number of traffic accidents and the crime rate in your geographic area, the cost of your car and car parts, the number of miles you drive each year, the amount of risk you are accepting for yourself (your "deductible" is a form of self-insurance), the policy's limits of liability to the insurer . . . all of these items are relevant in determining the extent of an insurer's risk.