Situation: Typically, this publication focuses on the technical side of life insurance. However, this month we are going to take our sleigh down a slightly different trail. In celebration of the holiday season, we will be exploring a new kind of story about Santa Claus. If anything were to happen to Santa without a life insurance policy in place, it is reasonable to assume that Mrs. Claus would face some difficulty keeping the North Pole toy manufacturing empire open. And so, for our final message of the year, we are going to give our readers a little peek behind the scenes of the factors a carrier might consider when underwriting jolly old Saint Nicholas for key person coverage.
Solution: Underwriters look at several different factors including lifestyle, medical records, occupation, hobbies, driving records and financial history to determine an insured’s rate classification. This review of a file can essentially be divided into two broad categories: a health and safety assessment typically referred to as a medical assessment, and a financial assessment. A favorable medical rating is an important first step to getting a case issued, but a case can still be declined during the underwriting process by failing to meet the financial underwriting parameters established by the carrier reviewing the case.
Some insurance carriers become known for the niches they fill. For example, some carriers are good at underwriting insured with diabetes, high cholesterol, specific cancer history, or build issues. While others are better for assessing specific financial situations such as business, charity or inherited wealth. Despite Santa’s reputation as a role model for good behavior and holiday cheer, his behavior would actually cause some considerable underwriting concerns. That’s why it’s important for Santa’s financial advisor to work with a life insurance brokerage general agency like DBS that has a knowledgeable and experienced underwriting team with access to several insurance carriers. With this background let’s consider Santa’s medical factors.
Santa’s Medical Assessment: There are no two ways about it, Santa is an underwriter’s nightmare. It’s clear that he engages in some rather risky behavior. His December 24th escapades are documented in numerous stories. Dashing from rooftop to rooftop in an open aircraft (sleigh) with a limited guidance system (reindeer with a shiny red nose) and no signs of a seatbelt will likely result in a table or flat extra rating with most carriers. A review of his DVR records will likely show a few speeding tickets given his ability to visit every good child in one night. Let’s not overlook his rosy-cheeked face which might be an indication that he is tipping some brandy – hopefully not while driving. The fact that on one day each year he stays out all night shimmying down chimneys breaking into strangers’ houses does not help to mitigate this aspect of the medical assessment.
In addition, Santa’s penchant for high-fat, high sugar-treats and his obvious girth is cause for concern, as obesity is a leading cause of diabetes and heart disease. It is reported that Santa periodically smokes a pipe which will cause most carriers to classify him as a smoker. Despite these risk factors, by all account Santa is very old and still very active,1 so maybe there’s more to his health habits than immediately meets the eye.
It’s likely that Santa maintains an exercise program during the balance of the year so that he can remain “lively and quick.” After all, he carries a lot of toys which requires him to be strong. He has been married to Mrs. Claus a very
long time and has several pets. Studies indicate that both factors provide several health benefits. Considering that he can fly around the world and finesse his way up and down millions of chimneys in a single night, it appears that he is in good cardiovascular condition. However, his risky travel behavior will likely cause him to be rated unfavorably.
Santa’s Financial Assessment. While it appears that Santa might be able to pass a medical assessment, it’s not clear how he will be underwritten financially. Typically, insurance carriers use a multiple of compensation as a guideline to determine the face amount on a key person. For a person like Santa who presides over a business, that multiple is ten times compensation. A person making $250,000 would be considered for a face amount of $2.5 million, for example. Amounts beyond this can be acquired, but usually need to be explained in a cover letter.
Despite Santa’s longstanding popularity and unmatched contributions to the world, there is no evidence that he is paid in anything other than milk and cookies. In fact, according to a 2014 survey, approximately a third of the population felt Santa doesn’t need to be compensated for his work because what he does is out of the goodness of his heart. Indeed, key people in not-for-profit organizations often do not receive the same level of compensation found in for-profit businesses. When we run into situations like this, we often need to look to other means of determining the impact their loss will have on the business.
Fortunately for us, each year insure.com determines what Santa would earn based on a pre-set list of tasks matched to occupations and wage data from the Bureau of Labor Statistics. Like past announcements, the 2018 publication provides a breakdown of tasks performed by Mr. Kringle. It’s clear from the list that Santa has a unique skill set which includes roles in the care of reindeer, cookie taster, and private detective. However, the bulk of Santa’s time is spent running the workshop. In 2018, insure.com determined that based on all the components from the following list of tasks performed by Santa, his annual salary would total $152,367, a 2 percent increase over last year:
Running the workshop – Manager industrial engineer Labor negotiator of elves – Labor relations specialist
Pilot of sleigh – Pilot Announcer (“Merry Christmas to all”) – Announcer
Professional shopper – Sales Taking care of reindeer – Farmworker
Wrapper of gifts – Packer Going down chimneys – Chimney sweeper
Letter reader – Correspondence clerk List checker (checking it twice) – Accountant/Auditor
Distributor of gifts – Shipping/receiving clerk Cookie & milk taster – Agricultural inspector
Sitting in mall to speak with children – Customer service representative
Investigator (knows if you’ve been good or bad) – Private detective
On top of wages it’s possible to include incidental perks not received by the rank and file – elves in this case. Santa’ compensation package includes lodging and transportation which can be included in the calculation to come up with a key person face amount. Based on this data most insurance carriers would feel comfortable offering Santa a key person policy in the range of $1.5 to $2 million.
The holidays are often a time spent with family. It can also be a time to embrace the child in us and enjoy the magic
of the season. But after the presents are unwrapped and the good china put away, we have a responsibility to provide enough life insurance to care for our family. We should not ignore income replacement, mortgage payments, childcare and education expenses that arise after a death in the family. Shopping for coverage is easy with DBS. Happy holidays to all, and to all a good night.