Lauren In Tokyo

Thursday, May 31, 2007

I'm so vain. I probably think this blog is about me

On occasion I've been known to do a little vanity searching to see how popular this blog is. For a long time, if you searched either Google or MSN, Lauren In Tokyo would be somewhere on the first results page. The site shows up after Lauren Lee Smith's website and, for some reason, my user page.

Today I took a quick look and discovered that I am now relegated to the 4th Google results page and nowhere to be seen on the MSN search results.

I'm a little sad. I guess I need some better links pointing to this blog if I ever intend to get it back up to the first pages again. The question is whether I should do it with good content or with reciprocal links.

Update 2007/06/03: It seems that I've fallen to page 6 on the Google search.

Tuesday, May 29, 2007

Insurance comparison: the tables

Unbeknownst to anyone, I stopped in at Nippon Seimei, better known as Nissay, this morning to have a chat with the insurance department there about their offerings. If Ishida-san is reading, don't be alarmed. I only went to get policy information, not with any intent to actually buy. You're still our guy.

I received information about 4 different policies. The main thrust was that I want to leave enough such that my survivors will be able to survive without me. I also want to be free from paying the insurance company at some point, so all payment options are limited to age 65 at the latest.

The first is the simplest, 20 year Term Life insurance for 50,000,000 yen.
The second is slightly longer, an Age 65 Term Life insurance policy for 50,000,000 yen.
The third is a standard Whole Life policy with premiums paid until age 65 for 10,000,000 yen.
The fourth is a Mixed Term and Whole Life combination policy which provides 50,000,000 for a term of 20 years, then premiums and coverage drops to a Whole Life policy for 10,000,000 yen and is paid off at age 65.

I ran the numbers and was surprised by what I found.

I used the most expensive policy premium as a baseline. Any amount over the baseline is assumed to be saved or invested at a rate of 5% per year (current AAA bond values are this rate). Every month the premium is paid and the leftover is thus invested and returning some value. Naturally, the most expensive policy will have a zero rate of investment. If the maximum premium is 20,000 yen per month and the policy costs 15,000 yen, then I have a savings of 5,000 yen which is applied to the savings.

The value at any given time of the basket is simple. I take the redeemable policy value (how much my heirs get when I die), subtract the total value of the premiums paid to that point, then add the value of accumulated non-policy assets (the savings I mentioned earlier).

I then calculated the value of the basket up to my estimated death (75). As the policies expire, the entire amount of the premium is then applied to the savings. In the example earlier, I was depositing the surplus 5,000 yen into an investment vehicle, but once the policy payment term expires I would deposit the entire 20,000 yen amount into the investment vehicle.

What I found was that the best ROI by the time I died was the 20 year term policy. This is not surprising. The rates are low and the term is relatively short (for my purposes), so a lot of surplus investment capital is left over to build a large nest egg.

In second place was the Whole Life policy! Coming in at a 122% ROI, it outpaced the lagging Age 65 term policy in the long run. By providing a guaranteed cushion, the whole life plan never ventured into negative territory. Likewise, the fact that the premiums stop when I reach 65 means that I would have only paid 80% towards the 10,000,000 yen policy value. While not spectacular, the returns were steady.

In third place, I was surprised to see that the Age 65 term life plan failed to keep pace with the Whole Life policy in the long run. However, it does far outpace Whole Life for the 30-odd years that the term covers. In fact, this is probably why this laggard isn't such a bad deal once you start thinking about priorities. If the reason that I have insurance is to make sure that my kids are taken care of, then 1) I need to provide more than 100,000 dollars for them when I die, and 2) I expect that they will finally be independent by the time they are approaching 30 (Julian will be at least 32). Therefore, if I die before I turn 65, this policy makes the most sense. However, if I die after the policy expires, then all of this must be considered sunk costs. It does return about 57% in the long run, so that's not too bad.

Coming in last is the pitiful Mixed policy type. It not only didn't provide any return on investment, but actually costs more than the policy is worth as the end of the payment period approaches. The basic idea is that you have a 20 year term life insurance policy for 40,000,000 yen and a Whole Life policy for 10,000,000 yen into which all the premiums are divided. In essence, it provides a way of providing a significant amount of policy value for the years you need it while socking away a smaller amount of money for the twilight years. After the 20 year term is up, the policy can be renewed for another term at a higher rate (31+20 = $$$) or the term policy can be dropped and the premiums drop to reflect that. Since both policies must be paid, the premiums are about a quarter more than the Whole Life policy. If you do the math in your head, you will quickly realize that the policy actually ends up upside-down. You have paid more in than you can ever expect to get out. The best chance for this to pay off is to die right away or at least before the 20 years is up. Once the term policy is over, the Whole Life policy part becomes more expensive than a standard Whole Life policy.

Armed with this information and numbers, I am finally ready to discuss this with Miki. Her Whole Life mindset is not wrong if you only consider the long term, but I'm not exactly sure what she intends to do if I die before Julian becomes independent. 10,000,000 is not a lot of money, especially in Japan. Once we figure this out, we'll call up Ishida-san and get him to hook us up with an appropriate policy.

Monday, May 28, 2007

Insurance basics

I'm trying to get a handle on all the advice that is coming in from left and right (though unfortunately not from you, dear reader) regarding my insurance quandary.

The basics are easy. There are two types of life insurance. Term insurance and Permanent insurance. Permanent insurance is usually sold as Whole Life insurance, though it is a broader category encompassing several species of policy types.

Term insurance is very simple. It is insurance that provides coverage within a specific term (5, 10, 20, 30 years) from the start of the policy. If you die at any time during the period that the policy is in effect, the insurance company pays your beneficiaries (kids, wife, etc) the value of the policy. If I insure myself for 1 million dollars in a 30 year term policy, I hope (!!) to die before the term ends so that my heirs can get the benefits of the policy.

If the term expires and I do not renew it for another term, the insurance vanishes and no one inherits anything. Many term policies can be renewed, though some do not allow this. Of those that allow renewal, some may disallow renewal in the case that the owner is above a certain age (65). Another issue is that the premiums increase significantly because the policy holder's age at the time of renewal is very high (in the actuary's eyes).

At the other end of the spectrum, we have Permanent life insurance. The big differentiator between Permanent Life and Term Life is that while Term life is only insurance, Permanent life also acts as a sort of investment vehicle. Therefore where you would only pay a small premium for actual coverage (as under Term life), you also need to pay an additional premium to increase the cash value of the investment held in the policy.

Special regulations permit the value of the cash to increase without being taxed (until withdrawal). This provides a means of increasing asset value without getting hit by taxes until the very last minute. Ideally, this means that you can save a large chunk of the principal because it has accumulated tax-free for so long.

A Permanent life policy is just a savings account with life insurance attached. That is the easiest way to describe the difference between the two. Another way to look at it is that a Term policy with a strict savings deposit program would be the same as a Permanent life policy.

Since we can now compare apples to apples, we can easily see that at the end of the term we want to compare, the difference between the two policies should be negligible. For comparision purposes, I will assume that both policies have the same payout. On top of that, the term insurance policy will be supplemented with a savings deposit program so that the premiums (in aggregate) align with each other.

The policies I have been looking at are 30 year payment terms. The permanent life policy is approximately 4 times more expensive per month than the term life policy. If I opt for the term policy and put the remaining 3/4ths in an interest bearing savings account, at the end of 30 years I will have accumulated 22.5 times the premium amount (of the Permanent life policy).

The bare minimum comparison requires that the policy scheme that has more accumulated value at the end of the term be more economically advantageous.

Beyond the basic comparison, it is also necessary to consider that the Permanent policy also provides additional value at the time of death by paying both the accumulated value and the remainder up to the policy value. So the remainder is an additional benefit in favor of Permanent life.

I'll need to look at the numbers again and see how it all works out, but I have a feeling that Permanent Life is a huge racket compared to the more straightforward Term Life policy.

Followup: Insurance for Americans living abroad

According to discount insurance brokerage QuickQuote, most insurance companies require U.S. residency for at least 3 years prior to application.

I am still a bit perplexed by this Japanese insurance system. I would be paying 4 times more for a policy which pays off 10 times less than if I were insured by an American insurance company. That doesn't make any sense.

I'm going to need to re-examine my options here in Japan. I don't want to get fleeced because I think I have no other options. Apologies to Ishida-san, but I am a little uncomfortable paying those exorbitant rates for a pitiful amount of coverage.

Sunday, May 27, 2007

Foreign life insurance

I'm shopping for life insurance lately and this morning spoke with our insurance agent from AXA. He, as I expected, tried to sell us on whole life insurance, but I am taken aback by the exorbitant rates. The fact that I may be able to get some portion of the premium back at the end of 30 years is small consolation for them to suck my pockets dry during the interim.

So I hopped online this evening to see what sort of rates I can get for term life. It turns out that I'm looking at rates far lower than what I was quoted this morning, and the payout is almost 10 times higher for the same price.

The problem is whether I am only eligible for those rates if I live in the U.S. or whether I can buy the insurance while I am over here in Japan. If I end up staying in Japan, will I still be eligible to buy insurance sold in America? I don't see why it would make a difference, but it was my wife's concern.

Where can I get information about this?

Monday, May 21, 2007

Mailsafe: $8.95 for nothing

We all know what a pain it is to travel by air nowadays since they took away our privilege to carry stuff onboard. Well, at least now, instead of dumping that explosive extra foam 2 percent latte into the garbage bin or throwing Grandpa's antique swiss army knife into the Prohibited Items canister, you can now have that stuff mailed back to you at your address via Mailsafe!

Why, just look at how happy Cynthia Rooke, the very first customer of Mailsafe in Portland, is to be able to safely travel without all those pesky "prohibited items" in her purse. We're all safer now that we can just mail our own stuff back to ourselves!

Thanks TSA!

Monday, May 14, 2007

Farmer Lauren

Ichikawa city has a summer program where for 2000 yen, you can learn about farming by planting sweet potatos in a special city-managed plot. It takes a little luck to get approved since selection is based on a lottery system, but we made it through and yesterday was planting day.

The land is divided into 2 plots of 15 rows. Each row is further split into 10 sections. Each section is 6 meters of black vinyl-covered soil. Our section is #218.

We pulled into the lot (if you can call a grass-covered field a lot) a little past 11:00. The program gets underway at 11, so we were a little worried that we would miss any directions from the organizers. It turns out that lots of people thought the same way and showed up earlier than 11. In addition, there was no group instruction, just a little explanation at the check in counter. So by showing up a few minutes later, we avoided the initial rush and were able to get our seedlings and planting stick in just a few minutes.

A nice old guy from the government office walked us out to our plot and gave us a little introduction to the program. Everyone (heh) knows that Ichikawa city's most important crop is Japanese pears, but Ichikawa's land can support a vast array of food crops. The plot we are assigned is near the ocean, so a strong sea breeze will affect how our sweet potatos will grow, so it is important, for example, to plant the seedling sideways so that the wind does not pull the plant out or wither the leaves before it has time to extend roots.

The planting stick is approximately 30cm long, so it can be used to measure off distances as well as poke holes in the vinyl sheet. First you measure off 20 holes at 30cm distance, then you push the stick deep into the hole to form a hole where the seedling can be placed. Then the seedling goes in (sideways, away from the wind) and some soil from the surrounding area (mostly from the walkways between the rows) is placed on top of the seedling like a blanket and underneath the seedling like a pillow. Press down firmly and the seedling is planted.

Julian was with us, we were hoping he'd learn something, but he got to be a hassle walking all over other people's sections that we put him in an ombu himo and I hoisted him onto my back while we did the planting.

Miki took care of digging the holes and putting the seedlings in. I took care of covering the seedlings with soil and tamping them down. In all, it only took about half an hour from start to finish to do the planting.

I was much relieved that it wasn't the back-breaking work it was advertised to be. Julian enjoyed the outdoors and really liked tromping around the loamy soil. We have to go every 2 or 3 weeks to pull weeds and reset any overgrown potatos (they will fall off the vinyl into the row and will try to put roots and potatoes into the hard ground). In three months the crop will be ready and we will be able to take home about 80 potatos (4 per seedling x 20 seedlings). What we will do with 80 potatos, I haven't got the slightest idea.