Statistical Relevance in a Pool of One

Updated on April 1, 2012

By Neal Hurley 

“On average…”  How many times have you used that phrase and what does it really mean?  If a man stands with one foot in a tub of boiling water and his other foot in a tub of ice water, then “on average” he must be comfortable.  Right?

As an insurance professional, I see plenty of actuarial statistics regarding death and disability.  For example, a 30 year old has a 1 in 4 chance of suffering a long term disability prior to age 65 that lasts more than 90 days.  Is this statistic any more relevant to you than the example above?

To an actuary, this ratio is a starting point when devising a price structure for a disability insurance carrier.  She knows that with a large pool of insureds, there is a certain predictability on the number of claims and so a cost can be calculated for anyone wishing to enter the protection of the pool.  The smaller the pool, the greater the deviation from any actuarial predictability.  Hence, the greater likelihood of either extremely large profits or catastrophic losses.  To the actuary, it is simply a mathematical calculation with financial implications.

On the flip side, what does it mean to you, an individual?  Absolutely nothing!  Nada!  You don’t have a 1 in 4 chance of anything; there are no 4 tries to get to retirement.  There is only 1 of you, so you will either suffer a disability or you won’t, making your chances 0% or 100%.  The actuary’s comment to that would be that for you, as an individual, “a pool of 1”, there an incalculable risk of disability.

You own a home, a car, some jewelry, perhaps even a boat or weekend cottage.  These are all valuable assets but they are not your “most” valuable asset. As a professional, your greatest asset is you and your continued ability to earn a living.   After all, it is that asset that makes all your other assets possible.  So now what?  Wouldn’t it be reasonable to protect that most valuable asset, just as you do your home, your car, etc.?  Is it not equally, if not more, important?

Disabilities do happen; they do ruin careers and they do devastate families – both financially and emotionally.  As with all your “hard assets”, the insurance industry has also created various products to help manage the risk of the loss of your income.

  • Personal Disability Insurance can replace a significant portion of your income if illness or injury keeps you from working or causes your income to drop, allowing you to maintain your household and your family’s lifestyle.  An Own Occupation definition of disability can add an extra measure of protection.
  • A Retirement Protection Policy makes deposits to your retirement plan when a disability interrupts your regular retirement contributions.  Disabilities don’t necessarily mean you won’t need retirement funds someday.
  • If you are a business owner, a Business Overhead policy will pay fixed office expenses, keeping your business alive.  This gives you time to either, recover and return to work or to sell the business that is still open.  Additional business policies are also available to cover other specific needs.

As with any other insured product related to your health, you must meet the insurance carrier’s health criteria in order to use these products to shift the risk from your pool of 1.  So, if you are feeling pretty good this week and you haven’t done it before, maybe this is your opportunity to dust off the old “round tuit” and take a look at these risk management tools.  By the way, on average, how many times does opportunity knock?

Neal Hurley is Disability Insurance Specialist at Hurley Associates and a Principal of Hurley Insurance Brokers, Inc. Established in 1988, Hurley Associates provides insurance products and services to healthcare professionals nationwide.  To learn more about their services, call 412-682-6100 or visit them on the web at

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