Flying Without A Full Tank

Four police officers boarded the plane upon landing in Toronto and peacefully removed two passengers without drawing their weapons. Thus ended my previous flight to Calgary.

The Next Flight
What a beautiful morning, bright and sunny. I'm in an airplane heading to Calgary again. The doors have been shut. We have our seatbelts fastened firmly and our trays locked in the upright position. No one is sitting beside me --- about 10% of the seats are empty.

So why are waiting for more fuel?

Glad But Puzzled
Would you rather
A. leave on time but without enough fuel?
B. get enough fuel but leave late?

You'd probably pick B because you aren't given the option C:
C. leave on time with enough fuel

We had no choice and got option D:
D. leave late but with enough fuel

Maybe we didn't top up because fuel is cheaper in Calgary? That shouldn't matter because the flight had a fuel surcharge of about $200 for a round trip.

The plane didn't move for a smidgen for an extra 28 minutes. I figured we'd fly faster to make up for lost time, which would use up more fuel . Wrong! We landed 37 minutes late. Pity the passengers waiting to board in Calgary for the continuation to Vancouver.

Why More Fuel?
Why didn't the plane have enough fuel in the first place? It did until last minute passengers boarded. Once the pilot found out, he ordered more fuel. If you fly over the Grand Canyon in a small plane, you get seated based on weight. That's a tad scary. Luckily, a Boeing 737 isn't as finicky.

How Much Fuel Is Enough?
I talked to the airline afterwards. The plane needed enough fuel to reach the destination and an alternate, plus a margin of 1,000 pounds. The plane refuels at each stop. The tank is not filled up because of the weight of the fuel.

Passengers lose. When a flight is full, we are crowded and wait longer for boarding, a washroom, in-flight service and deplaning. I didn't realize that a comfortably-full plane could be delayed too, thanks to a handful of last minute passengers.

Our flight plan got updated too. Otherwise, we could have ended up in Colorado, a passenger quipped. Unlikely, I thought --- we'd need more fuel.

The High Cost of Joint First To Die (JFTD) Life Insurance

A family may need life insurance when either spouse dies. Or a small business may need a lump sum to buyout the shares of a partner upon death. Rather than buy coverage on each life, why not buy one policy to cover all the lives?

You can with Joint First To Die (JFTD) coverage. The death benefit is paid when the first of the lives insured passes away. Intuitively, one death benefit should cost much less than policies on each life. Since the oldest or least healthy life will likely die first, isn't the price close to coverage on that life alone?

That doesn't happen. With JFTD coverage, you also lose flexibility.

Suppose there's coverage for $1 million on two lives. If one dies, then $1 million gets paid tax-free. Suppose both die together or within days of one another? How much gets paid now? You can expect $2 million (may vary by company).

Actuarially Speaking
Using simulated actuarial notation, here is the mortality risk for a JFTD policy on two lives, x and y: Qx + Qy - (Qx * Qy) where

• Qx = probability that life x dies
• Qy = probability that life y dies
  

The death benefit is paid when either life dies but does not pay twice if both die together.

If you were buying two single life policies, the underlying mortality risk is Qx + Qy, which is quite similar. The discount for JFTD (Qx * Qy) is relatively small. Consequently, JFTD has limited appeal.

Options
This is what was available when I designed products years ago:

• Split Option: prior to the first death, can exchange the policy for individual policies on each life (e.g., upon divorce or separation)
  
• Survivor Term Insurance: upon the first death, each survivor receives term insurance for a few weeks at no charge (which means that additional death benefits could be paid)
  
• Survivor Option: upon the first death, each survivor can apply for a new policy on his/her life without underwriting with premiums based on the attained age (which means coverage can continue)

Products vary and I haven't seen a comparison in ages. There may be better (or worse) options today.

Loss of Flexibility
A JFTD policy offers the same coverage on each life. If each life needs a different amount of coverage (e.g., if one spouse earns a much higher income), single life coverage can be tailored. Another option is to buy coverage on the primary breadwinner and add a rider for the other spouse.

With Joint First To Die, the savings may be less than you expect but enough to be worthwhile.

Links (no endorsements implied)

• JFTD Basics (CCH Financial Planning Toolkit)
  
• JFTD (acculife insurance)
• JFTD Life Insurance (The Term Guy)