Rick Perry…WTF!?

There’s a report that Texas Governor Rick Perry pushed a plan to have a Swiss bank buy life insurance policies on retired teachers, essentially betting on how long they’d live, with side payments to the state of Texas.

I can’t figure out what to make of this. At first blush it just seems bizarre and creepy (and apparently the teachers thought so to, because they didn’t give their approval to letting someone else take out life insurance policies on them).

But ghoulish as it may seem, is there any harm done? Apparently some businesses have long been in the practice of buying insurance policies on their employees as a tax avoidance method. If there’s a payout, they get it, because they’re the beneficiary, and the employees descendants get no part of it. But nothing’s taken from them, because the employee never contributed to paying for the plan, and presumably had their own life insurance with their own designated beneficiaries, completely separate from whatever their employers were doing.

So…I don’t know; any thoughts?

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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12 Responses to Rick Perry…WTF!?

  1. My question is, “Who were the insurance sales people that talked Perry into having such an idea?”

    Seems to me, a lot of money can be made with such a large customer base.

  2. D. C. Sessions says:

    It’s bad enough that my ex-wife has a policy on me (and it looks like it’s going to take lawyers to get her to close it out.) That’s creepy.

    But having Rick Perry as your beneficiary at the same time he controls your pension and your health care? Sure sounds like a great way for the Lone Star State to close a budget gap from time to time.

  3. Mark Boggs says:

    Yeah, why not have each state hold an insurance policy on every citizen? Or even just those in high-risk industry like firefighters or police officers or those deployed with the military? Is it possible that you could come out ahead on a deal like that? I keep thinking no, but why would Texas even consider holding insurance policies on teachers of all people?

  4. D. C. Sessions says:

    Or even just those in high-risk industry like firefighters or police officers or those deployed with the military? Is it possible that you could come out ahead on a deal like that?

    Absolutely. You can not only save money on foregone workplace safety, but get paid for doing it.

  5. Mark Boggs says:

    Could we call this “deathicit reduction”?

  6. James Hanley says:

    A few details.

    1) Texas would not be the beneficiary, but a Swiss bank. Texas would just get a cut of the deal.

    2) It would only have been on retired teachers, basically a bet on when they would die.

    3) Phil Gramm appears to have been behind it…I’m sure nobody who’s followed his career is about to keel over in shock.

    But, again, as ghoulish as this seems, would the retired teachers actually have been harmed in any way by it?

  7. D. C. Sessions says:

    But, again, as ghoulish as this seems, would the retired teachers actually have been harmed in any way by it?

    That depends on whether you believe in perverse incentives.

  8. D. C. Sessions says:

    Yanking your chain aside (although I’m somewhat serious), there is a direct harm to the “insured.”

    The reason is that pricing on life insurance is progressive: the second $50K costs more than the first, and so on. When the Lone Star State puts a policy on its residents, the cost of insurance that actually benefits the covered individuals (or their estates) increases.

    As I noted above, the ex-wife has a policy on me and I’m more aware of this effect than I would prefer to be. In effect, her betting on my premature demise as her retirement plan is at the expense of her children and their coverage should I die soon.

  9. AMW says:

    Meh. There’s already a market in buying the life insurance policies of terminally ill people. They’re called viaticals. The only reason I can think that a harm is done falls right in line with D.C. Sessions’ quip about perverse incentives. But even then the insurance agency could just include a murder escape clause and most of the problem is solved.

    Mark Boggs asks if you could come out ahead on if you bought an insurance policy on every citizen, or on every citizen in a high risk profession. Assuming that premiums can be priced freely, the answer is no. In fact, it’s like asking if you can come out ahead shooting craps in a casino, and for exactly the same reason:

    Say the probability of me dying is p. And suppose I want to buy a policy that pays out $X in case of my untimely demise. The expected benefit to my estate is therefore pX. Any insurance company that would sell me such a policy for a price less than pX will lose money. In fact, if the company sells it to me for exactly pX it will lose money, because it has to pay for its operating expenses. Ergo, I would have to pay a price for the policy in excess of pX. This means that, on average, people who are insuring their lives are paying in more than their estates will ever receive. But in exchange they are reducing their exposure to risk.

  10. James Hanley says:

    D.C.,

    I suspect most of the retired teachers already have life insurance, so wouldn’t the increased price be paid by the Swiss Bank?

    And if the insurance is bought from different companies, will there be an increase in price at all? Do the companies have that much knowledge about each others’ sales? Are they sharing information? I know precious little about the insurance business, so I’m truly curious.

    As to the perverse incentives, what’s perverse about offing retired teachers? The world’s probably better off without aging know-it-alls.

  11. D. C. Sessions says:

    And if the insurance is bought from different companies, will there be an increase in price at all?

    For one thing, part of any application for insurance is listing other policies. Failure to disclose can void the policy when it comes time to collect.

    Do the companies have that much knowledge about each others’ sales?

    Not only see above, but yes — they do. Nice cosy business they have, with all sorts of arrangements for coordinating with each other.

  12. Matty says:

    I was under the impression insurance companies had some kind of sharing of information in the same way banks can see a credit score that takes account of all your debts not just ones with that bank.

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