Insurance You Can Live Without

by Andrew Tobias

"If you or anyone you know is over fifty, I urge you to get pencil and paper ready."
So begin the celebrity life insurance commercials you may have seen on TV. Dick Van Dyke does them. Ed McMahon does them. Even Gavin MacLeod‹good ol' Murray on the Mary Tyler Moore Show-does them.
Murray, Murray, Murray.
But the plans sound good, don't they? No matter how bad your health, you cannot be turned down for this "top-quality, big-dollar" protection. Yet amazing as it seems-well, this is why I told you to get your pencil and paper ready-Murray's plan costs just $5 a month. And-get this!-your premiums are guaranteed never to rise as you get older.
Says Murray: "I can't tell you what a relief it is to know that we won't be a burden on our children." Here the kids thought they stood to inherit a pretty penny‹Murray did go on to captain the Love Boat, after all-but had it not been for this insurance, they'd have been left with nothing but the funeral bill. Thank heavens for this insurance.
If you're 50, Murray says, just $5 a month buys you $10,000 in protection.
Catch #1: If you die of an illness, your heirs get $2,800, not $10,000. The bulk of the insurance benefit is for accidental death only. Yet accidents are a minor cause of death among older people. (Dick Van Dyke's pitch calls them "one of the leading causes of death for people over forty-five." But actually, fewer than 3 percent of deaths among people over 45 are caused by accidents. So more than 97 percent of the time the payoff would be $2,800, not $10,000).
It's true, you can't be turned down for this coverage; but-Catch #2-only after you've paid premiums for two years are you actually covered. Die of an illness before then, and your heirs get nothing but a refund of the premiums you've paid.
True, too, your rates are guaranteed not to rise (well, sort of) but-Catch #3-as you get older, your coverage falls. Say you pay $5 a month, month after month, for 25 years. Then, at 75, having paid in a total of $1,500, you have a heart attack and die. This policy pays your heirs a grand total of $225. Period. (Die after age 79 and they get no benefit at all.) This is what Murray endorses as BIG-DOLLAR protection. He can't tell you what a relief it is to know that $225 will be there when his loved ones need it.
If at age 79 you died not of an illness but, say, hang gliding into a utility pole, your heirs would get an extra $775, except that-Catch #4-death while hang gliding doesn't qualify for the accidental death bonus. Neither does death in a war (declared or undeclared), in a private plane, by suicide, during surgery, or while intoxicated, if intoxication caused the accident. (If you were merely three sheets to the wind in the bar car of your commuter train when it derailed and flew off a cliff, you'd be okay.)
Catch #5: Your rates are guaranteed never to rise only so long as the insurance company doesn't raise them. If it decides everybody should pay $6 a month instead of $5 or to cancel all the policies altogether because it's not making money on them, the company is free to do so.
Catch #6: Five bucks a month is the least you can pay; but this is portrayed as such a good deal for "folks like us," as Murray puts it-you know, warm, bald guys who make $80,000 an episode-that many folks sign up for the full $40-a-month's worth, to cover both them and their spouses four times over. Five dollars a month is nothing. But $40 a month, in the budgets of many older Americans-$480 a year-is a hefty sum.
The pitchmen freely acknowledge they're paid to endorse these insurance plans, but Dick Van Dyke says, in his follow-up letter: "P.S. I'm sure you know I would never speak out for anything I didn't personally believe in." Gavin MacLeod, in his P.S., writes: "I want you to know I would never speak out for anything I didn't believe in with my whole heart." The cash Continental American Life paid him to endorse this plan has nothing to do with it.
Trust no one. You've got to take responsibility for your own affairs.
Many people wish they could turn the whole mess over to someone else. Widows particularly express this wish, having in some cases been made to feel over many years of marriage that they can't possibly understand anything having to do with money. But the folks who do understand money, while many have your best interests at heart, have their own interests at heart, too. You have to take responsibility for your own money because no one cares about it as much as you. That doesn't mean you can't rely on a variety of experts to help-a good accountant, a good mutual-fund manager, perhaps a good real-estate or insurance agent, financial planner or attorney. But ultimately it's you who is in charge.
If you don't understand what you're investing in or haven't formed a broad spending/borrowing/saving/ insuring/investing plan yourself, it's unlikely things will work out terribly well. (Most people wind up with nothing, says financial advisor Venita Van Caspel, "not because they plan to fail, but because they fail to plan.") What's more, you can do it. The simple investments are very often the best. And that goes, too, for the simple loans, the simple insurance, and the simple financial plans.
It's not enough to respond to advertising headlines or the sales person's enthusiasm or the lavishly illustrated brochure. You've got to read between the lines-or, at least, read the prospectus. And since you won't-most prospecti are unreadable-you've got to stick to sensible investments recommended by competent, disinterested parties. Not competent or disinterested, competent and disinterested-which certainly leaves out Murray, may very likely leave out your hair stylist, and may even leave out advice from your accountant or financial planner, who could be getting a commission for steering you into a particular deal.

From The Only Investment Guide You'll Ever Need, by Andrew Tobias. 1996 by Andrew Tobias. Excerpted by arrangement with Harcourt Brace & Company. $12. Available in fine bookstores everywhere or click here.