Whole Life Insurance Pros And Cons

Life insurance, either whole life or term, may have one of a number of purposes. The bottom line is protection but protection from what? The whole life insurance pros and cons relate to the annual cost of the insurance and the benefits which we will discuss later in this article.

The military has life insurance. I had $10,000.00 while I was fighting in Korea which my parents would have collected if I took a fatal hit. I could have continued this insurance, as did many World War II veterans, but I was not wise in those matters after I was discharged and I guess I thought I was going to live forever.

Those who do keep their military insurance end up paying nothing for it as time goes on. Many people who served in World War II are now collecting that insurance, that is, their beneficiaries are. That amount pretty well covers funeral cost which are ridiculously high.

Almost one million policies for WWII veterans are still in force, some using the dividends to increase the value of their policy. The average holder is now over 80 years old. Almost two hundred thousand Korean veterans (the smart ones) still have this term insurance some purchasing more insurance with the dividends.

If you are a disabled veteran form military service or not, you should contact the Veteran's Administration to see what benefits you may be entitled to including mortgage insurance. Those who fought in Vietnam and in the Bush Wars should contact the Administration.

Life insurance can be used to protect from the loss of income if the breadwinner passes on. This is particularly important for families with children. When the income stops coming in, the cost of raising a family do not. So families should have protection.

Preserve Yourself From Life Insurance Scams

As if buying life insurance wasn’t complicated enough, there are multitudes of life insurance scams out there, run by criminals just looking for opportunities to separate people from their money. Not only do their victims lose out financially, but often learn that they can’t get legitimate life insurance or their identity has been stolen. So how can you preserve yourself from life insurance scams?

Know why you are buying life insurance

If you already have life insurance and someone is offering you a better deal, think carefully about why you would make a switch. Do you have reason to be dissatisfied with your current policy or insurance company?

If someone is offering you a fabulous deal that will make you big bucks, think long and hard and don’t let visions of what you could do with all that money cloud your judgment. An outrageously good deal is probably just one more life insurance scam.

Whether you have life insurance or not, be clear with yourself what your intent for having life insurance is. If you have a young family, then you want them to be protected if you die suddenly and can’t support them. If you are older, you might be looking for enough to cover funeral expenses and care for your spouse. Whatever your goal, know how much insurance you really need.

Ask questions, think about it, and ask some more

One reason life insurance scams are so common is that buying insurance can be complicated and many people don’t fully understand what the terms of their policies are. For example, some life insurance policies will only pay out after you have paid into it for 15 or more years. This kind of policy would not be a good option for an elderly person. Understand what it is that is being offered to you, and any penalties you would face if you gave up your existing coverage.

Population & the environment

I've spilt a lot of printer's ink on the topic of the connection between population size and environmental quality. Indeed 24 years ago I co-wrote a book on the topic.  At a Productivity Commission Workshop on "Sustainable Populations: Key Policy Issues" a few years back I was asked to summarise my bottom line.  I immodestly think its one of my better contributions.

http://www.pc.gov.au/__data/assets/pdf_file/0015/111057/17-population-discussant-clarke.pdf

Low oil prices to continue?

This argument (here) that $50US/barrel oil might be a ceiling price not a floor impresses me as sensible. The Saudi's are involved in a war with the US unconventional oil producers and the most sensible thing for them to do is to keep prices below a level that allows the unconventional oil producers to be profitable. That price seems to be about $50US/barrel. Moreover, the policy seems to be working.

According to the AFR page 9 this morning (unfortunately paywalled) drilling rigs are going out of business now in the US.  Over the last 3 months oil rig numbers in the US have fallen from 1591 to 1366 while gas rigs have fallen from 330 to 310.  One forecast is that 800 rigs will close by the end of 2015.  This does not necessarily indicate a proportionate drop in oil production given the "flight to quality" rigs that will occur.

It will be interesting to see this Wednesday what BHP-Billiton says of the effects of the recent oil price collapse has on its $20b US shale oil investments.  A fair bit of its production is low cost (around $40/barrel) but the outlook for returns will at least be disappointing.

IKEA

I have only shopped in IKEA twice and was impressed with the quality of the merchandise once it is assembled.  It is an interesting experience for me because you can choose how much effort you want to put into the purchase and that determines your costs.

Last week I ordered two sets of bookshelves with height extensions for about $200 - amazingly cheap for what look like quite elegant shelving.   You take the order to a warehouse where you select the disassembled items and take them on a trolley to the cashier. For $40 they will do this for you so you only need to go the cashier but I didn't pay that - this involved trivial effort.  The price for assembling the shelves and disposing of the packaging was $140 - a two part tariff consisting of a fixed $35 charge and a variable $90 charge for the assembly of the two units.  I felt some guilt about my laziness in this respect but I my experience is that idiot proof assembly often defeats me so I paid up including the $15 fee for the assembler to remove the boxes. Delivery cost another $92 so all up my $200 shelves cost me $440.  Still fairly inexpensive for what seem to be high quality units.

There were time costs of waiting for delivery of the items and for the arrival of the assembler cost me a whole working day. This was expensive in terms of at least one foregone golf game.  In addition, as far as I can see, you cannot order from IKEA online so the shopping expedition through Melbourne traffic added to my user costs.

Update: This was written before the assembler came.  Nice guy put the thing together in two hours plus - two simple bookshelves. It wasn't simple and very pleased I had it assembled rather than do myself.  It would have taken me (at least) a day of frustration.

Sometimes it all gets just too ugly

A beautiful young woman who had been practising hymns for her church is raped and murdered by a homeless man (who said) he was happy to be sent to jail. 

Don't have to do

William S. Burroughs in his book (with Daniel Odier) "The Job" describes a de-conditioning exercise called "dont't have to do".  No lessons, no books, no work to be done.  It starts by mocking up a way of thinking you have to do - for example a set of errands or a speech before an audience you need to impress - and then a way of thinking you don't have to do - for example based on a person whose way of life is completely different from your own - what did Dutch Schultz the gangster have to do?  This exercise, borrowed from Scientology, is intended to loosen up enforced ways of thinking.

You wind up understanding that you don't have to do anything.  Even abandoning language and words and just seeing and relaxing.  You can't work at it (or write blog posts about it) as that would be doing something. "Its a way you would think if you didn't have to think up a way of thinking you don't have to do".

I've been out of the workforce for 4 weeks now and thinking about these ideas. I still feel compelled to do things - even if they are non-work things.  I still dislike the idea of "wasting time".  Forty years in the workforce does that to you.  Of course I don't want to wander around like a middle-aged spaced out hippy appreciating the great orgasmic nothingness of it all.  But I do want to become a little less driven and more inclined to recognise the value of "don't have to do".

Don't have to prepare for classes, don't have to go to the gym, don't have to play golf, don't have to read Proust, don't have to...

Review of Richard Tol on climate change economics

This is a draft of a proposed review.

Richard S. J. Tol, Climate Economics: Economic Analysis of Climate Change and Climate Policy, Edward Elgar, Cheltenham UK, 2014.

This is a text on climate change and its economics.  It is written in a brisk, lecture note format with much material tersely presented. It contains exercises, reading lists and utilizes a supplementary website which contains lecture notes, quizzes, lecture slides and supporting databases.  As someone who teaches classes on climate economics I found this useful.  Particularly those early parts of this book that involve describing the science and in establishing a conceptual policy setting.

Early chapters summarize the physical science basis of climate science with a emphasis on the physical uncertainties, the difficulties of projecting climate trends and of devising future emissions scenarios.   Then abatement costs are discussed. They are seen as low provided adjustments are given enough time to be implemented. Carbon taxes work best if they are implemented broadly and double-dividend benefits are utilized.

The choice of market-based policy instruments – taxes, subsidies, tradable permits - for emission reduction is then analyzed in both static and dynamic contexts.  The dynamic efficiency conditions are presented tersely assuming that the carbon price equals a costate variable from an optimal control task reflecting the shadow price of emissions. With respect to choosing between taxes and tradable permits under uncertainty the standard Weitzman result is provided. Since costs depend on stocks of emissions not flows, using a tax instrument will outperform tradable permits.  Tol rejects the realist political argument that “grandfathering” permits admits greater political feasibility than subjecting emitters to taxes.   He also discusses problems of making permits internationally tradable and discusses the EU scheme and the CDM mechanism.  Technological innovation in the energy sector is best driven by a credible abatement policy.  These are all sensible views and well argued.

Approaches to valuation of various climate impacts are then provided along with a useful discussion of willingness-to-pay and willingness-to-accept compensation for climate changes.  This binds the way climate policy discussions are formulated and impacts on the way climate impacts are valued.

Chapter 6, which looks at empirical estimates of climate impacts, is more problematic.  This is the start of a sequence of chapters that downplay the need for a stringent activist climate policy.  The claim is that moderate climate change is most likely which will have small aggregate impacts mainly in poor countries where limited adaptation capacity creates extra costs. Hence, it is argued, economic development is the best means of addressing climate issues since it best improves this capacity.  The probabilities of severe climate events are minute so such events can be disregarded.  The unstated hypotheses here are that economic development will occur in time to prevent extreme climate change and that the probabilities of “fat tail” extreme climate change are low.  These hypotheses are rejected by many, for example, by the 4^th IPCC Assessment Reports.

This type of argument is developed further in Tol’s view of “optimal” climate policy which is seen as involving a modest emissions reduction that will not end  use of carbon-based fuels anytime soon.  Tol correctly points out that climate policy objectives should be posed in terms of emission stocks in the atmosphere not emission rates.  To make this clear, the world could emit at maximum rates for a hundred years and then cut emissions significantly – hitting any pre-assigned emissions target but still leaving a devastated environment.   This isa confusion of the UNFCC and many policy makers (including those in Australia). It is a straightforward stock/flow confusion.  But it is a long step from endorsing this view to asserting the case for limited action to address climate change. Tol’s case is based entirely on his interpretation of the Nordhaus DICE model.  It is a strong, controversial argument derived from such a narrow ideas base.

Tol goes further. Climate change only matters at all if you care about the distant future, faraway lands and remote probabilities.  Some nice economics is exposited as a precursor to these claims – the Ramsay rule for discounting, the role of equity weights, Weitzman’s dismal theorem and so on - but I could find no empirical or theoretical justification provided for the claims.  Of course the Stern Review using low discount rates came up with a strong presumptive case for addressing climate change decisively and now.

Indeed in a subsequent chapter, Tol shows himself how risk and irreversibility intensify the case for a more stringent climate policy. This is a major practical policy concern.

On the strategic issues involved in climate policy, Tol asserts that game theory and “free riding” explain why cooperative agreements such as Kyoto have not yet had a large impact and why future attempts at negotiation will also be futile.   The implication Tol draws is that most policies will, of necessity, be nationally-based, adaptation policies that do not require international agreements.  This seems an overly pessimistic assessment given current initiatives world-wide (in Europe, China and the United States) to mitigate emissions.

Tol provides an Excel-based integrated assessment model that can be numerically explored by students.  Although highly aggregative this is a useful way of illustrating how the various science and economic components of modelling need to be put together to determine policy impacts.

In a final brief chapter Tol sets out his bottom line on policy.  The climate issue is seen as a minor problem that can be efficiently resolved with a limited carbon tax.  Views that the problem is more serious than this are identified as climate “alarmism” fostered partly by the self-interest of politicians and bureaucrats.  The potential for international action is limited by right-wing conspiracy fears and the free-riding issue.  Domestic actions are expensive but politically sought even though they have relatively high cost compared to a cooperative global response.  These views can be debated but what is non-debatable is that these views do not reflect the worthwhile discussions of climate science and climate economics that lie elsewhere in this book. There is much sound analysis in this book but this analysis does not seem to drive the author’s policy views.

Harry Clarke

La Trobe University and the University of Melbourne.

January 2015.

Photos

Checking I can readily post photos on my new blog. I took the train into Melbourne today where it was raining.

Starting again

Starting a new blog as my old WordPress blog, something I have maintained for 7 years, has grown to vast proportions in size - more than half a GB.  Also I have reverted to using Blogger software as it is sophisticated enough for my immediate needs.  On Blogger it is easier to post photographs as well.