The Harvard Gazette published a fascinating article yesterday discussing a newly observed form of wealth effect. In summary, the analysis shows a “trickle-down” effect for increased life expectancy from the richest to the poorest in more affluent communities. In terms of longevity, it is better to be a low-income resident in a wealthy area, such as San Francisco or New York City, than to be a middle-income resident of a poor area, such as the industrial Midwest.
Life settlement investors have been aware for some time of the adverse selection associated with access to better healthcare and most will haircut life expectancies for policies with larger face amounts, based on the reasonable assumption that higher face amounts are correlated with greater wealth and therefore access to better healthcare. This study demonstrates that even for investors focussed on the small face market, residence in a wealthy neighborhood may be a risk factor indicating increased longevity. The impact is significant, with the article’s authors noting a 10 to 15 year increase in longevity between the poorest and richest areas.
An abstract for the study which gave rise to the article can be viewed here.