Thursday, February 10, 2005

World's Most Expensive Life Insurance Policy

Dean Baker talks about how the much praised inheritability aspect of private accounts would do very little for African-American males. Short version -- the median African-American male, born in 1984 and retiring at age 67 would have a potential bequest of abobut $65,000 in real terms. And, if they died the day before their 67th birthday, not having retired early, they'd have been able to leave about $112K to the heirs of their choice.

Now, that doesn't sound like a totally nontrivial amount. But, let's talk about pre-retirement. Sure, if you're childless and unmarrried, if you die before reaching retirement age you get "nothing" from Social Security, in much the same way that if your house doesn't burn down you get "nothing" from your fire insurance policy. And, "all" of your private account would in theory be part of your estate.

But, if the concern is leaving something for your heirs if you die early, the standard thing to do is buy a life insurance policy. A healthy person can buy a 30 year $100,000 term life insurance policy at age 37 for about $375 per year which, unlike your private account, would provide 100 grand for the entire 30 year period. So, Bush proposes substantially reducing your promised benefits (including survivor benefits where applicable) in exchange for letting you bequeath a modest amount of money if you die early. Some deal.