josephs@ttidcb.UUCP (Bill Josephs) (04/10/85)
I once had a finance professor at UCLA GSM who put the whole issue of insurance (life and other) into prospective. During a discussion of portfolio analysis, he was showing how negatively correlated assets (or at least assets whose correlations were not the same) decreased total risk. He pointed out that insurance was a perfect example -- it was negatively correlated with the event against which you were insur- ing since either the event did not occur in which case you won and the insurance return was zero, or else the event occurred, the insurance return was one and you won again! In this light, any dilution of pure insurance with other investments (savings, whole life, etc.), dilutes the effect of the correlation and should be shunned (or at least such investments should be unbundled). For example, premiums that disappear after n years are really premiums paid for out of the proceeds of a saving program which could be unbun- dled with a corresponding increasing in return. Presumably, you can do as well as the insurance company with such "add ons" and would not charge yourself the commission of the overhead that they charge. Bill Josephs TTI