Is Life Insurance Rational?
BLUF: Life insurance might be rational for many effective altruism-minded people, but the devil is in the details—that is, one’s probable risk of death and the payout per cost of a plan.
US military servicemembers are afforded the [option](https://www.benefits.va.gov/insurance/sgli.asp) of paying $29 a month for $400,000 in life insurance. The norm is that the overwhelming majority of servicemembers pay for this. I decided that if I happen to die while in the military, I wanted the $400k to go to the most effective charities. The separate $100k death gratuity would go to my family members, but I would divide up the $400k payout among four think-tanks/charities I care about:
- theMachine Intelligence Research Institute,
- 80,000 Hours,
- the Future of Humanity Institute at Oxford.
While this may not be the optimal way of distributing funds and there is an argument that in a sufficiently-sized donation market, it’s optimal for people to just donate to the one charity they think is the best, I still hate the idea of putting all my eggs in one basket. Additionally, if I die, I expect my donations to go on the local news or at least be on my obituary, and I think it would be better for people to see four organizations than one. Hence, I decided to focus on the four cause areas of AI-alignment (MIRI), meta- effective altruism (80,000 Hours), direct impact on global poverty (GiveDirectly), and general existential risk research (FHI).
Are my odds of death good enough to warrant this $29 a month that cannot go to these charities? I assumed my odds of death were good enough when I was an enlisted deep sea diver (here is a laundry list of diving hazards for the uninitiated. I feel they are still decent enough as a West Point Triathlete who frequently bikes on terrible New York roads 8+ months of the year to warrant the $29 a month. However, I recently realized that EA is probably big enough now that I don’t need to *make sure* that these organizations get a minimum amount of money from me, but that the community is big enough now that I should just maximize the expected utility of my donations. In other words, I might actually be wasting a portion of $29 a month depending on my actual risk of death. Thus, I figured it was time to just shut up and multiply.
It turns out the calculus really doesn’t have to be that hard. $29 a month * 12 months a year * 7.3 more years in the Army= $2540. $400k/2540= 157. Essentially, if I have greater than a 1 in 157 chance in dying over my expected time remaining in the Army, it makes sense that I buy the life insurance. I think this is definitely within a natural log order-of-magnitude of the true probability, which is between a 1 in 55 chance and a 1 in 403 chance (ln157=5 ; e^4= 55 ; e^6= 403). Generic actuarial data supports this (average odds of dying while a 25 year old male (my average age over the next 7 years) is 0.001451. This yields a 1 in 94 chance of dying, which is riskier than 1 in 157. Additionally, while I may not be doing the risky driving which fuels deaths for people my age, I think the road cycling and risks while on deployment (assuming we don’t go to war with a near-peer) will keep my number at least in the ballpark of the national average. Hence, it seems rational for me and others in the military to buy life insurance if we want to maximize expected dollars donated to the causes we care about.
Why is SGLI so cheap if the expected utility works out for most people? This could signal my math is faulty. Other explanatory factors include:
- SGLI is run by the Department of Veteran Affairs and they are not making a profit.
- they probably make a lot of interest from investing the money.
Does my math check out?