hYPERBOLIC DISCOUNTING
‘Preference for a smaller reward sooner than a larger reward later’
‘People spend their money like drunken sailors… as if they will die in a few years’. This quote from Harvard Psychologist Steven Pinker, nicely describes hyperbolic discounting. A preference for immediate gratification now on the basis tomorrow may never come.
This phenomenon can lead people to forego valuable death benefits to boost their income while they’re alive.
action
- Point out that the cost of a 50% beneficiaries pension is around a 10% drop in income.
- Basic death benefits like guaranteed periods have even less impact on income.
- Remind clients that if they die before 75 death benefits are tax-free.
- Ask how they’d feel if they died without making provision for their loved ones?
- There are legitimate reasons why someone may forego death benefits, but make sure you capture this information.