Ask Dr. Per Cap

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. Nimiipuu Community Development is happy to share this column as partner with Native Financial Learning Network funded by Northwest Area Foundation.

TV Life Insurance

Dear Dr. Per Cap: 

My mom recently purchased life insurance from a commercial on TV.  You know the ones – no medical exam, no health questions, 100% guaranteed acceptance.  It sounds too good to be true.  Is it?

Signed, Doubtful

Dear Doubtful:

I’m familiar with the life insurance you’re talking about.  Whether or not it’s too good to be true depends on your definition of truth.

A few years ago I assisted an elderly woman who had purchased life insurance from one of the companies you’re describing.  She wanted the policy to cover future funeral costs to avoid saddling her family with a financial burden.  I took a look at her paperwork and learned she actually had two separate whole life insurance policies that she’d been paying on for about 4 years.

Unlike term life insurance with a death benefit that only pays out if the policy holder passes away, whole life coverage provides a more modest death benefit that accumulates cash value which a person can borrow against as a source of income.

In this case the two death benefits combined amounted to less than $4,000 which I suppose was enough to cover final expenses.  However her monthly payments for those two policies were over $40 combined, and because she’d been making those payments for a few years she had already paid over $2,000 in premiums.  That was more than half the amount of the death benefit already and she was in really good health.

At the rate she was going in just a few more years she would have paid more into the policies than they were worth, which just didn’t make any sense; especially when she could have just as easily put that money into a savings account and used that money to pay for final expenses.

I helped her cancel the two policies and by doing so she was able to claim the cash value she had accrued to date which was about $450.  Sure she was out the roughly $1,500 she had paid in monthly premiums but so what.  She was now free to save the money she was putting toward those premiums which added up fast. In fact she’s still alive today so I know she’s ahead of where she’d be if she’d kept the policies.

So back to your question -are TV life insurance products like the one I described too good to be true? 

The insurance they sell is real; however, it’s very expensive coverage for what you get.  And it’s primarily designed to appeal to older folks who might have trouble purchasing more affordable life insurance that requires a medical exam and more stringent underwriting.  

I’d say the way it’s advertised doesn’t really align with how the products actually work.  And because many people won’t take the time to read the fine print on those policies, they’ll probably end up with a product that doesn’t match their needs.

A better option is to help your mother review life insurance from more reputable mainstream insurance companies.  Depending on her age and health it’s quite possible she can still get quality coverage at an affordable price that fits her needs.

MetaRez or Bust

Dear Dr. Per Cap: 

Real estate is so expensive, maybe I should buy land in the metaverse instead.  People are getting rich off digital assets and I could create a metaRez.  What do you think?


Asset Hunter

Dear Asset Hunter:

The virtual reality world of the future, aka the metaverse, has arrived.

For readers who haven’t yet dipped a big toe, Decentraland is an example of what we’re talking about.  It’s a popular metaverse app that allows real people to vicariously explore a virtual world of land and cityscapes while interacting with other users as online personas or avatars. 

Why would anyone choose a virtual life over a real one?  Honestly, I don’t really get it myself but in a society with increasingly less desire and need for in-person interaction, the metaverse appeals to some people.

The Decentraland app also includes a marketplace for digital assets like land, wearables, emotes, and names.  Boosting demand is Decentraland’s limited supply of a cryptocurrency called MANA along with a fixed number of property tracts on which to build and sell.  Yes, people pay real money for items that have no physical bearing.  Sounds crazy?  Maybe, but markets for intangibles like intellectual property have always been a bit irrational. 

For anyone still laughing, a sprawling 6,000 square foot property in Decentraland called Fashion Street Estate fetched the equivalent of $2.4 million in MANA tokens a couple of years ago.  Popular virtual venues for hosting virtual fashion shows, music festivals, and celebrity appearances have a few high end fashion brands, artists, and investors making big financial bets on digital assets in the metaverse.

But be cautious.  Just like cryptocurrencies, these digital assets can rise and fall with the swipe of a keypad, and the future of the metaverse is far from certain.  There are numerous challenges but a struggling economy, tech glitches, and expensive hardware mean folks aren’t flocking to this brave new virtual world in the numbers companies like Microsoft, Disney, and Facebook (which was so gung-ho it changed its name to Meta Platforms in 2021) had originally anticipated.

In fact some might say the path to metaverse fortune and glory looks more like the road to perdition than one paved with yellow bricks. Case in point – land values in Decentraland have dropped by almost 90% in the past year.

Like I’ve said before with crypto, meme stocks, and other investing fads – this is pure speculation, so think of it more like gambling than investing and don’t risk more than you can afford to lose.  Moreover, call me old fashioned but I’m betting on the future of Native communities we can enjoy without augmented reality headsets.

So leave the metaRez to the keyboard warriors because where I’m from there’s still no substitute for a big hug from Aunty, the aroma of fresh outdoor oven bread, and a beautiful piece of pottery you can actually hold. Talk about priceless!

Bank Run Fears

Dear Dr. Per Cap: 

Why did that bank in California fail?  And if it happens at my bank, will I lose all the money in my account?


Banking On

Dear Banking On 

Unfortunately, the biggest U.S. bank failure since 2008 occurred earlier this year when Silicon Valley Bank tanked to the tune of over $150 billion in uninsured deposits.   We’re still waiting for the dust to settle but it appears Silicon Valley Bank expanded too quickly, maintained poor oversight of its financial risks, and made a bad bet on interest rates falling instead of rising.

The good news is that the turmoil didn’t spread, which is always a risk when a bank fails because it can create a domino effect of other bank runs in which customers panic and scramble to withdraw their money before more banks shut down.

More good news is that bank regulators stepped in fairly quickly to take control of Silicon Valley Bank with the promise that all uninsured depositors will get their money back. Hopefully that will be sooner rather than later.  But the key words are “uninsured depositors”.

There’s a back-up plan in case of bank failures.  It’s called the Federal Deposit Insurance Corporation (FDIC) and it insures bank deposit accounts for balances up to $250,000 per depositor, per FDIC insured bank.  Banks actually pay a few cents for every dollar deposited as premiums to the FDIC which is why you should always see an FDIC member sticker on the door when entering a bank or an FDIC member statement on its website.

On its own website the FDIC states that historically it pays insurance within a few days of a bank’s closing by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank.

So for your average person who doesn’t have a checking or savings balance that exceeds a quarter million dollars there’s no need to worry.  However, not every bank customer keeps all of their money in deposit accounts.  Many banks also offer investments like stocks, bonds, and mutual funds as well as life insurance policies and annuities.  These investment and insurance products don’t carry FDIC coverage so if you hold any of these non-deposit accounts at a bank, pay close attention to the risk.

The Silicon Valley Bank failure was really ugly because there were a lot of large deposit accounts that exceeded the FDIC limits.  Many of these uninsured account holders were tech firms; however, there were some uninsured individual depositors too who had a very rude awakening when people started withdrawing their money from Silicon Valley Bank in droves.

Financial crises like these are tough to watch and important reminders that anytime you place your money and trust in an institution there is an element of risk.  Be smart and don’t take it for granted.

Costly HVAC Repair

Dear Dr. Per Cap: 

Last week our home’s old air conditioner finally died.  It’s going to cost $10,000 to replace which means no family vacation and a bunch of other sacrifices.  The hub suggested we just buy a few cheap AC window units and hold off fixing the main AC until next year.  Do you think that makes sense?


Needing Cool Air

Dear Needing Cool Air:

I know what you’re up against.  I have an older home and every summer I cross my fingers that the AC will hang in there another year.  Heating, Ventilation, and Air Conditioning (HVAC) systems are insanely expensive, so much that an older system can significantly lower a home’s value.

Your hub’s idea is one way to go.  For less than $1,000 you could buy three or four window AC units and have them installed and running in an afternoon.  However, that’s a cheap quick fix you’ll want to avoid if possible.   For starters there’s no comparison between how window units cool and the original AC system your home was built with.

Window units are loud, breezy, not very energy efficient, and don’t come close to central air in terms of performance.  The best you can do is cool specific rooms intermittently while lacking smooth, quiet, consistent cooling of your whole home.

I get it though.  No one wants to spend ten grand on a home repair.  However, that’s part of being a responsible homeowner.  Sure you can hold off a year but, if you do, come up with a rock solid plan for how you will save enough to buy a new air conditioner.  The risk is that you make it through summer and come fall you’ll forget all about the AC and raid the piggy bank.

The bottom line is sooner or later you’re going to have to fix that AC so may as well do it now.   If you need some extra motivation, please remember that unlike many other home repairs a brand new AC system is considered a home improvement which adds value to your home.

City and off rez homeowners might also qualify for state or local tax breaks when replacing an older unit with a newer more energy efficient one.

Now let’s think about that $10,000 repair bill.  Most HVAC companies offer financing which is usually just a home improvement loan with a two to seven year term.  Like any loan, they’ll run a credit check and any issues can raise your annual percentage rate (APR).

Rather than borrow from the HVAC folks, I’d check with a tribal or local housing program or a community development financial institution for a home repair or improvement loan with a more affordable APR.   You might also be eligible for a federal home repair loan.

Going forward it also pays to keep a savings fund just for home repairs.  Expect to spend about 1% of your home’s value on repairs and maintenance in an average year.  Most years you shouldn’t have to spend a whole lot but every so often you’ll get hit with a big bill like a new roof or the HVAC.

A little planning and saving makes for a prepared homeowner.

Economic Catch-22

Dear Dr. Per Cap: 

The markets are in a nose dive and my 401k is getting hammered.  I’m freaking out and keep hearing it’s only gonna get worse.  What can the big shots in Washington do to save the sinking economy?


Worried Investor

Dear Worried Investor,

What’s been touted as the longest bull market in history is hanging on by a pretty thin thread.  The S&P 500, the most commonly used benchmark to measure the stock market, is down about 20% from an all-time record high set on the first trading day of 2022.

You, me, my Uncle Joe, and anyone else who owns a mutual fund or a few shares of their favorite tech stock is feeling the pinch.  And unfortunately the Federal Reserve, the nation’s central bank which investors look to in times of market turbulence and crisis, can’t offer much to folks clamoring for the lifeboats.

Ordinarily during times of a steep market decline the Fed can divert a free fall by tweaking the federal funds rate.  That’s a short term interest rate that banks charge each other to loan their excess reserves, financial shorthand for the extra money that banks hold beyond what’s required in case of a bank run.

By lowering the federal funds rate money is pumped into the economy at favorable terms which encourages individuals and businesses to spend.  In theory this blast of fresh money is enough to win investors’ confidence and prevent a broad market sell off.

But here’s the problem.  We’re in the midst of some of the worst inflation since the days of colored toilet paper.  Remember those lovely pink and blue rolls of Charmin?

This means the Fed can’t lower interest rates anymore because flooding the economy with cash will only make the inflation worse.  Not feeling $4.50 for a gallon of gas?  Try paying $6 or $7 a gallon.

Instead the Fed is in the really uncomfortable position of having one option to fight two very different beasts.  It can’t lower rates, but if it raises rates instead to slow inflation the chances of an economic recession increase.  Well, the Fed has chosen the latter option and has begun to raise rates.  This leaves investors hoping they don’t raise them too much or too quickly.

One of my favorite books is a World War 2 novel called Catch-22.  It describes a complicated dilemma in which the only fix creates an even bigger dilemma and a self-defeating solution.   The Federal Reserve, aka your big shots in Washington, is stuck in a Catch-22.

So unfortunately, we’re probably going to see things get worse before they improve.  But like I’ve said before – if you’re a buy and hold, long term investor which anyone reading should be – don’t  get caught up in short term drama.