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Betting on death

PEOPLE in the "developed" world are living longer, yet managing to die "younger". As they age they need a little extra cash to fund the last few years of fun. The result is a potential major spurt of growth in a relatively young investment sector.

People in the USA and Europe are increasingly cashing in their life insurance and, according to a new report, profits are attracting investors. Since the investment matures when, and only when the policy holder dies the investment is a bet on death.

Expectancy versus reality

Frequently people confuse "life expectancy at birth" with the average age at which people die. Things do not work that way. In the United Emirates, for example, life expectancy at birth is 73.7 years for men and 77.4 years for women. In the United Kingdom it is 75.7 years for men and 80.7 years for women, but these data only tell a small part of the story.

The average lifespan for adults — the time at which our offspring collect our life insurance — in the UK is now around 80 years, but this year we have some 9000 citizens over the age of 100. At only 0.015 per cent of the total number of citizens this may not appear to be impressive except that centenarians are the fastest growing segment of the population. At current rates we will soon have a population in which old people outnumber the young. This demographic will be placing a major burden on a depleted workforce whose efforts fund pensions and health care. It will also mean that buyers of insurance policies will wait to collect their profits.

A little demography

If you believe that decline is inevitable with increasing age the effects of the increase in real life expectancy verge on the frightening. In the OECD nations generally the number of people over the age of 60 will increase by 75 per cent by 2030. In Japan, a country that in recent years has had its share of economic problems, the increase is expected to be 100 per cent. With little or no population growth in the European Union increased life expectancy alone could raise the total of those that are suffering from dementia to 10 million by 2020. The United Kingdom and United States are not alone in facing a "pension's black hole". In all societies the value of savings has failed to keep pace with rapidly growing needs and expectations. Dementia, like fun, can be expensive.

Why does a recent research initiative suggest that investment in other people's life insurance is a good and rapidly expanding investment? Surely, if you are going to invest in all or part of my life insurance, logic suggests that the sooner I die the better.

The short answer is that if you were to invest in one individual's policy it would not be a suitable investment. If, however, you invest in a sufficient number to be statistically significant actuarial tables would give an accurate indication of when your investment will mature. Risk would be small and profits easily forecast.

As an example, in the UK the percentages of deaths are currently as follows:

— Four per cent of insured die before the age of 65

— 21 per cent die between the ages of 66 and 70

— 24 per cent between 71 and 75

— 35 per cent between the ages of 76 and 80

— While 16 per cent live until well over 80

With this kind of information and with a return of between seven and nine percent, other people's lives are increasingly being viewed as a relatively safe and predictable investment.

That is why a recent report suggests that investments of this type will increase from a relatively lowly $13 billion today to $161 billion by 2030.

How we identify "old"

It is claimed that where age is concerned "sixty is the new forty" and judging by the behaviour of those that our forebears would have regarded as old there is much truth in the concept. In East Anglia where I live a very athletic and somewhat dangerous sport is speed skating. As I write local television is celebrating the exploits of a speed skater who is 91 years of age and still competing.

Research by Hans Selye showed how we can all reverse our physiological age by years by managing stress in a way that is tailored to our needs. As for mental capability, in spite of dementia and myth we are getting smarter all the time.

A quick tour of your aging brain

The "touchy feely" school of consultancy has a wonderful time disseminating false factoids about your brain. Let us look at a few pertinent facts. You have roughly 100 billion neurons and a similar number of glial cells in your brain. Each neuron has a fibrous axon that acts to transmit information to near or distant parts of the brain. So far so simple — 100 billion neurons and one axon to each is relatively straight forward. The neuron has other fibrous branches called "dendrites". These receive information and there can be as many as 100,000 or considerably less, to any neuron. Information passes between brain cells by way of synapses — permeable gaps between axons and dendrites — and in simple terms the more a synapse is used the more efficient it becomes. It is by multiplying the number of neurons by the potential number of synapses that enables those that wish to mislead make silly claims such as "we only use one per cent of our brains". We use what we need to use — at any age.

Brain cells, like all cells, are pre-programmed to die. The process is called "apoptosis". So as we age our cells are fulfilling their destiny by dying. Does this make mental decline with age inevitable? Not really. If we live to reach the current average age at death only about three per cent of our neurons will have died. The rest will still, unless we suffer from dementia, be fully functioning. In short, add experience to mental capacity and we are all smarter as we get older — including a speed skater of 91 years. The fact is that active minds lead to activities, some of which need financing.

A quick return

Those investors that are looking for a quick return may be disappointed that people are living longer, more active and more fulfilled lives. For a speedier return it may be that they should turn their attention to those parts of the world where life continues to be short. Unfortunately for the investor and tragically for 900 million fellow global citizens that die young because their labours are deemed to be worth less than $1 a day, the poor will not have life assurance policies.

It seems that with a rapidly aging population that do hold such policies investors may be well-advised to keep a careful eye on the actuarial tables. Betting on death is a sure thing, but it is increasingly a certainty that is long delayed.