Probability and Life Insurance Risk

Probability as it pertains to life insurance isWhy?? The probability that your original choice was
misunderstood. In fact, our brains not well-suited tocorrect is 1/3 in the beginning of the experiment. The
understand the probability of certain occurrencesprobability that it's incorrect was (and is) 2/3. Opening
happening. We see this in our fear of flying and ourDoor C does not change this initial probability. The
embrace of driving for example. Maybe we don'tfact that the host has revealed Door C just shifts
want to correctly analyze the probability of athe probability for Door B to 2/3.
catastrophic event occurring in an effort toWhat does all this have to do with the need for life
somehow avoid it happening. Let's look at probabilityinsurance? One reason many people put off buying
and how we can protect against the unforeseen withlife insurance is their perceived sense of the
term life insurance.probability that something will happen. We constantly
Our brains just aren't built to correctly understandhear "I'm healthy, I don't need life insurance". That's
probability. There's a very interesting book callednow probability works. We all have a chance,
"The Drunkard's Walk" which delves into thisunfortunately, of passing away early. Let's face it...it's
mismatch. Unfortunately, probability is all around usscary. But that's the issue...we must FACE it. When
and we need to protect ourselves and our lovedpeople hear statistics, they tend to assume they will
ones from financial, medical, and other catastrophesbe on the "good" side of fate. This is especially true
are at their foundation, are based on probability. Let'swhen it saves them money each month on life
take an example to help correctly frame ourinsurance premium. It's natural. Unless you have a
understanding of the need for purchasing term life"glass half empty" mindset, given a statistic that 4%
insurance.of the people in your age band will pass away in the
There are three closed doors. Behind one door is anext 10 years, you mentally place yourself in the
great prize and behind the other two, nothing. Youother 96%. I admit that I do it as well and I see the
are asked to choose one door. You randomly pickneed for life insurance coverage every day with our
Door A (which remains closed). A host then opensclients! Our brains just aren't well-adapted to the
Door C to show there is nothing there. You are thenworld of probability and risk. In the example above,
given the choice of keeping your current choiceeveryone (translated EVERYONE) has a 4% chance
(Door A) or switching to Door B. What should youof triggering a life insurance policy. It may seem like a
do? The answer is counter intuitively that you shouldsmall percentage...one we can safely avoid or sweep
always switch. Most people will assume the odds areunder the rug...but it's still there. If it we're 50%, the
50-50 now between the two remaining doors andlife insurance rate would be $500 instead of $50
decide that there's no reason to switch. That ismonthly.
incorrect and if you're like me...it will take some timeIt doesn't make sense to avoid this risk. The better
and a great deal of disbelief to understand why.move is to use a tool like affordable term life
Computer models have randomly run this experimentinsurance to address it and THEN we can go back to
and show that Door A in this example has a 1/3the safe pastures of knowing we'll be in the 96%
chance of being correct while Door B has a 2/3(while addressing that nasty 4%). Let's switch to
change of being correct. That's double the probabilityDoor B where the protection of term life and piece
that the prize is behind Door B and you should switch.of mind awaits us.