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You ask the actuary to look ahead a bit and give you an idea of how this lifetime agreement might affect your budget in, say, 20 years. Of course, it's critical that there are sufficient funds to make such payments, not just in the first year, but in subsequent years as the group gets older, with special attention being paid to what happens to the group members. Fortunately, one of the members has a degree in actuarial science and is able to determine that there's little more than a 0.1 percent likelihood of a death in the first year, suggesting that each member's contribution in the first year is just $1,000 to cover the anticipated death. This "adverse selection" is taken into account in policy pricing, and term premiums beyond age 65 or 70 are substantially higher than the pure mortality cost would otherwise suggest. However, unlike the previous example, survivors don't have an obligation to continue paying premiums to an insurance company, which introduces a significant disadvantage to the company: at some point, only the unhealthy will continue their term premiums! But the bad news is that the cost to "pass the hat" in this hypothetical alternative to life insurance is indicative of how much life insurance will cost in any given year - and that the only way to guess what your cumulative life insurance cost will be is to begin with life expectancy calculations. The good news is that there really are insurance companies and life insurance policies to alleviate the administrative burden of what has just been described. If it weren't for the legal and moral bond you made so many years ago, you wouldn't consider making the current payment unless you knew your family was likely to be one of this year's beneficiaries. What was once a modest $1,000 annual contribution for a large payment to an unfortunate spouse is now so enormous that you would have to risk personal bankruptcy to make the current year's payment.

At that point, you will have contributed a total of $702,823 to provide benefits to spouses, and in that 43rd year the anticipated 36 deaths means you will need to contribute $73,620. Looking even further ahead, you discover that 43 years from the inception of this plan, half of the original group of 1,000 are expected to have died. So the twentieth-year contribution needs to be the result of that year's potential number of deaths divided by the remaining number in the group - that is, seven deaths divided by 933 (times $1 million), for an expected contribution of $7,503. While the odds of deaths are still pretty low for the group of now 57 occurred since the agreement began.