Life Insurance for Healthy People Like Runners
Think about asking someone you trust to do something important when you die. Unless this person really, really cares about you, what are the odds they follow through with what you asked them to do once you’re dead? Now think about asking a corporation – who lists you in their system as a number – to pay someone else a whole bunch of money when you die. That’s the idea behind life insurance, a product that takes a number of forms.
We can divide life insurance into two broad categories; term and whole life. Here’s a handy little chart that helps explain each.
Let’s talk about “basic term life” first.
Term Life Insurance
Let’s say you’re 25 years old and you purchase a term life insurance policy for (totally making this up) $25 a month that will pay your family $250,000 if you die before the age of 55. The day you turn 55, the insurance company ceases to have any obligation and keeps your premium. At that point in time, you would have paid $9,000 for
absolutely nothing peace of mind which is priceless.
Now, let’s say instead that at age 54 you got killed walking your doggy. Your family gets $250,000, right? Nope. Ever hear the term “time value of money?” At a 3% inflation rate, that payment is worth only about $103,000. Then there are all the caveats. You can’t commit suicide, you can’t OD on smack, you can’t go skydiving, you can’t get killed traipsing around in the DR Congo on a gorilla tour, and the list goes on. That’s because the insurance company is dreadfully scared of people who live risky lifestyles because these increase the chances of a payout. If you live a normal life as most people do, the odds of dying before the age of 55 are incredibly low.
- Lads – There’s a 99.23% chance you will live past the age of 55
- Lasses – There’s a 99.52% chance you will live past the age of 55
This means that regardless of the aforementioned trust issue, there’s an incredibly low chance the insurance company will ever have to pay out on this term policy. In the meantime, those payments provide a predictable revenue stream – kind of like the idea behind Annual Recurring Revenue (ARR) we talked about recently. And if ever you stop making those term life insurance payments, you also receive nothing.
What we can conclude here is that if you buy term life insurance, try to pay the least amount of money possible because there is an extremely low likelihood you’ll ever get paid. That likelihood falls even further if you live a healthy lifestyle. Let’s take runners as an example.
We probably all have co-workers that are runners – those people who won’t STFU about shoes, gels, personal bests, running watches, and all that other stuff they talk about that the rest of us just don’t find that interesting. People who are runners typically live healthy lifestyles and are far less likely to die over any given time frame when compared to a population where 33% of the people are obese, like ‘Murica. The same holds true for other regular exercise activities like walking, cycling, swimming, weight lifting, or yoga. People who live healthy lifestyles shouldn’t have to pay the same rates for life insurance as everyone else does, at least that’s what a startup called Health IQ thinks.
Life Insurance for Healthy People
Founded in 2014, Silicon Valley startup Health IQ has taken in $135.6 million in funding to develop a platform that exploits the “health arbitrage” between people who choose to live healthy lifestyles and the rest of us. Their latest funding round – a $55 million Series D – closed just days ago. Both founders come to the table with previous success stories in business and personal success stories regarding their own health. And everyone who works there is expected to have the same aspirations towards living a healthy lifestyle. There’s a gym in the middle of the office – literally- and the conference rooms have treadmills. No sugar, candy bars, or soda allowed.
Health IQ’s product is pretty simple. Demonstrate you live a healthy lifestyle and you get a discount on your term life insurance policy. Of course, we all know that many people who claim to be healthy are the sort that sign up for a gym membership and never go while still proclaiming that “they work out.” One way to test someone’s claim to be healthy is to ask them to complete fitness tests. For example, runners know very well that anyone who can complete a marathon in under 3 hours will be very fit and will have trained for a long period of time to get to that point. So, another way to make sure people are healthy is not by asking them to show you their daily running logs for the last three years but rather to have them prove that they finished a marathon. That ability to finish a marathon says a whole lot more about your health than anything else would. That’s what the whole “Health IQ” thing is all about.
There was a great article published on CNBC last year which talks about Health IQ’s founders and how they’re using factors to predict risk that may not be so obvious. For example, if you’re a vegan, there’s a lower chance you’ll die of colon cancer. If you’re a bodybuilder, you may actually incur a penalty because your Body Mass Index (BMI) is so high. In other words, vegans and weightlifters have been paying more than they should for life insurance premiums. Health IQ promises to take into account all the time, money, and energy it takes to live a healthier lifestyle and then reward people for it.
We’ve written before about How Technology Will Affect Big Insurance Companies and here we have another example of that. Health IQ has a business model that benefits healthy people by giving them a discount for term life insurance and the policy issuer since the customer is even less likely to die within the term. It’s part of a bigger trend in the insurance industry which is to move towards “personalized insurance policies” that cater to your unique situation. This will require people to share a whole lot more information about themselves, something which they seem more than willing to do. According to Accenture, “80% of consumers are willing to share their data for personalized services, lower prices and faster claims processing.” Seems like it’s only a matter of time before we’re asking people to submit their genetic profiles for the ultimate personalized life insurance policy. We’re already using genetic profiles for dating, so why not?
Are you paying too much for life insurance because you actually care about yourself and choose to live a healthy lifestyle? Stop subsidizing everyone who doesn’t. Instead, let Health IQ reward you for being healthy.