Big policies for insurance benefit none

July 10, 2008|By Eric Zorn

A financial planner told me a while back that I'm carrying far too much life insurance.

And my policy, I don't mind sharing, is for quite a bit less than the $5 million that Edward F. Bachner IV of Lake in the Hills allegedly took out on his wife in the pufferfish toxin case.

My death benefit is based on an (apparently overgenerous) estimate of the lump sum required to allow my family to continue on -- and my three kids to go to college -- as though I were still making regular contributions to the household bottom line.

What's Rebecca Bachner's death benefit based on? Well, we may learn more about that as the case against her husband, charged last week with possession of a deadly neurotoxin, proceeds.

The question is no knock on her. Her life itself is presumed priceless. But $5 million appears to be far, far greater than the financial hole she would leave behind. She's 34, has no children and works as a nurse. To earn $5 million by the time she turns 65, she'll have to make an average of more than $161,000 a year.

A $5 million payout in such a case -- heck, in my case -- wouldn't be merely compensation for survivors, it would be a jackpot. So at best, buying grossly outsize life-insurance policies amounts to a macabre form of gambling.

Is it legal?

"Under the law, a married individual has an unlimited insurable interest in the life of his or her spouse," said Steven Weisbart, vice president and chief economist for the Insurance Information Institute in New York. "How much is your loved one's life worth? There's really no number that's big enough, in some sense."

Yes, of course. But in another sense, at some point, doesn't a death benefit become a bounty? A price on the head of the insured that theoretically compromises his or her safety?

"It's true that a big number, for people with, shall we say, anti-social tendencies, might serve to incentivize inappropriate behavior," Weisbart said. "But unless there is some reason for the underwriter to think that's what's going on, he doesn't tend to bring that kind of analysis to bear. Though if the person involved is of modest means, that should raise something of a red flag."

My questions to Weisbart assumed a level of rationality in the life-insurance game that doesn't exist. Take, for example, the reported "terrorism rider" on Rebecca Bachner's life-insurance policy that added an extra benefit if she were to die as a result of a terrorist act.

Weisbart said such riders, though rare, are simply variations of traditional coverage that doubles the payment to survivors in cases of accidental death.

"You can argue that the shock that follows an unexpected or horrifying death might require all sort of therapy for the survivors," Weisbart said. "Other than that, I can't think of any reason why one particular kind of death should be insured differently from any other.

"For the most part we're talking about a product that's sold on an emotional basis rather than on a financial basis. It's almost a lottery ticket in some ways."

That's a game no decent person would ever want to win, and indecent people should never be allowed to play.

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Jacobson debate redux

Did former TV news reporter Amy Jacobson deserve to be fired for attending a backyard party at the home of a news source last July? The answer was and is no, yet some continue to see it otherwise. Now that Jacobson has filed a civil suit in the matter, the debate has broken out again at chicagotribune .com/zorn.