Yesterday I described a $5,000 life insurance policy from Mutual of Omaha that might appeal to an ailing senior citizen of limited financial means. It was hardly the “great news” the letter proclaimed had befallen me (I had been pre-approved!), but neither was it the worst mail-order insurance deal I’ve seen.

(Flight insurance offers, for example, are geared to pay out something under a dime in benefits for each dollar of premium collected. And flight insurance is normally superfluous anyway. You’ve got your regular life insurance, I hope; you may have additional insurance from the credit card with which you purchased the ticket; and you’ve got a big lawsuit against the airline or aircraft manufacturer for allowing the unscheduled landing. Why buy even more coverage, especially when it costs a dollar for each nickel’s-worth of expected benefits?)

Anyway, that was yesterday. Today I want to describe the other Mutual of Omaha offer I received. This one, which arrived the same day, was billed merely as “good news,” not great — namely, that I’d been pre-approved for a policy guaranteeing my heirs of $60,000 if I should die as the result of a “covered accident.”

Heck. Sounded pretty great to me!

Granted, it wasn’t really $60,000. It was $25,000 at death plus $500 a month for five years plus a final $5,000. To Mutual of Omaha, if they can earn 10% a year on their investments, that makes their true pay-out more like $52,000. But what do you want for $4.95 a month?

(And that rate is GUARANTEED not to rise. Unless it rises. They make a big deal out of the fact that they can’t single you out and raise YOUR rate. But they can raise EVERYBODY’S rates any time they need to.)

Granted, too, the policy excludes suicide and death in the military or a declared or undeclared war, or while piloting a plane or committing a felony — stuff like that.

But what impressed me, especially if it’s fairly calculated, is that right there in the fine print is a disclosure of “the odds.” According to the offer, they expect to pay out in benefits 59% of the money they collect in premiums. Well, 59.02% to be misleadingly precise.

My guess is that this does not take into account “the time value of money” — i.e., gives no weight to the important notion that they will have use of the premiums for quite a while, on average, before they have to pay the money out. I’d also guess they’re being conservative in the assumptions underlying this calculation (since they have no incentive not to). So maybe the true odds are for a pay-out more like 40% or 50% of collected premiums.

Still, their disclosure tells you more or less what you need to know, and they should be applauded for making it (or the regulators should be applauded for requiring it). First, it tells you that this policy is far better than those flight-insurance policies geared to pay out less than ten cents for every dollar in premiums. Second that the pay-out’s no worse than the lottery (except that to get your money you have to be dead). Third, that you’d be far better off putting your money in the bank, where the pay-out is more than $1 for every dollar you put in.

If you need life insurance, you’ll do better buying a policy that covers any kind of death, not just accidental death.

If you do buy a policy like this, be sure to let your heirs KNOW, so they can collect. And from then on, when they serve you food, have them taste it first.

Monday: Easy Money: The Right to Oversubscribe – Part I


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