Financial Death Insurance: Get some!

I wrote the following for my fellow colleagues at the place of my employment. It applies to everyone else just as well. Think its too late to acquire physical gold? Do you think that you can never get enough to make a difference when you have to buy at $1800 an ounce? Please understand that thinking is flawed and read on:


Ok, here is my Financial Death Insurance funding plan. It is very cheap. In fact it is free! You heard it right, free. This isn’t like life insurance (really physical death insurance is a better name for it) where you pay a premium to someone who promises to deliver a nominal face value amount in the event of your untimely demise. That premium is gone regardless whether the contract is asked to perform or not. The premium you pay for financial death insurance is paid to yourself. Further, the payout in the event of your untimely financial demise is in real terms, not nominal. Real purchasing power to buy real things is what this insurance policy delivers.

How do you purchase one of these financial death insurance policies?


Ask yourself if you want to understand how the policy works? This would be akin to asking yourself if you want to know how a life insurance provider can create a lump sum payout in the event of your death from the meager premium collected. If the answer is no, you had rather go and play gold golf, skip step 2 and proceed with step 3.

Step 2:

Research and understand the concept of Freegold. Go to the FOFOA blog and start reading.

Step 3:

Decide how much of your retirement portfolio you want to ensure and enter the amount here __________________

Step 4:

Decide whether you want an aggressive, average, or conservative policy. A conservative policy will require a smaller initial investment, an aggressive policy the most. To the degree that you understand Freegold or trust asset allocation to physical gold determines whether you are aggressive or conservative. Fully adopting the view of Freegold would be aggressive. Partially adopting the Freegold philosophy would require an average policy. Largely being skeptical would suggest a conservative policy. A conservative approach may be the best place to start because the plan can be altered at any time. Most people are skeptical that they are going to die young so they initially spring for a smaller insurance premium. Later they layer on more protection. Financial Death Insurance could be acquired in the same manner.

Step 5:

If purchasing a conservative policy – divide amount from step 3 by $85,000

If purchasing an average policy – divide amount from step 3 by $55,000

If purchasing an aggressive policy- divide amount in step 3 by  $25,000

**note**  The range between 25,000 – 55,000 corresponds to a bell curve probability distribution of Freegold prices that contain 95% of all possible outcomes, as valued in 2009 dollars.

Step 6:

Take result from step 5 and this is the number of ounces of physical gold that must be purchased. Multiply number of ounces by current gold price to get total dollars required for purchase.

Step 7:

Store gold from step 6 in a safe location where you will have unimpeded access.

That’s it, you’re done. Sit back and watch the show. Live your life and invest the rest of your money as you see fit. If you never have to use your financial death insurance (sort of like never dying a physical death, and about as likely) in the case of a sudden death of the US dollar, you are no worse for the wear. You policy can be liquidated for cash at any time, no penalties. Gold holds purchasing power or real value over time.

Some Ideas about funding your gold purchase:

If you believe financial death may occur at any time it would be wise to acquire your policy ASAP. You could always use cash on hand if it is available.  Or you could choose to liquidate other assets to acquire cash. I have closed IRAs and paid my tax and penalties to generate the needed funds. I have also borrowed money from myself through my 401k and used the proceeds to buy physical gold. I have even bought gold with my low interest credit card. I generally use this tactic when the paper gold price is slammed hard, essentially creating a fire sale for physical gold. The fire sales do not last long and you have to be ready to move fast.  But, in a pinch if one were concerned and losing sleep because one did not have an insurance policy, the credit card would work wonderfully.

If you feel you have adequate time and do not need full coverage immediately, you can dollar cost average into physical gold and buy with after tax savings over time. I do this as well when waiting for special “fire sales.”

The money that you cannot borrow in the 401k and the money in the DC fund is trapped. You will not be able to use these proceeds to fund your insurance policy. The best you can hope for is the dollar defies death and lives forever, or that you can park it in the best gold derivative product available and hope it survives the transition from our current dollar reserve to the future gold reserve. In my mind the best shot at this is Sprott’s Physical Gold Trust PHYS. This fund is fully allocated and does not have multiple claims for the ounces of physical gold it holds. This fund if it survives will retain the value of your shares by virtue of the fact that shares correspond directly 1:1 with real gold. The problem is that this fund needs a functioning market to maintain liquidity. The fund may be closed down at any point and settled in cash prior to gold’s ultimate valuation. Then you will be forced into a dying dollar at the worst possible time with little or no chance to convert those dollars to physical gold. PHYS is better than nothing IMO.

Please consider this trapped money the next time you offered the opportunity to park your wealth there or the next time someone suggests we need to put more of our earned compensation there via contractual requirement. These funds are a scourge and should be eliminated. Certainly we should never volunteer to add another dime into them.

**Final note**

While I have not offered specific financial advice and do not manage money professionally, I did mention one fund specifically, PHYS. Do you own due diligence and decide for yourself what is appropriate for your own portfolio.


The figures I used in my Financial Death Insurance post come from a probability distribution generated to cover 95% of the possible price outcomes for gold. This probability distribution is proprietary to Freegold analysis and is offered here as given. Anyone can substitute his or her own probability spread that reflects his or her own notion of gold and its eventual use a reserve asset in any future monetary system. As you can see, $55,000 is dead center in the bell curve distribution as the most likely outcome. There is a 68% chance gold will be between $40,000 on the low side and $70,000 on the high side. There is a 14% chance that gold will be as low as $25,000 and as high as $85,000.

So for instance, assume 1 million from step 3 and divide by these possible gold prices (round up to the nearest ounce):

1. $85,000/oz requires 12 ounces or $20,844 in gold today @ $1737
2. $70,000/oz requires 15 ounces or $26,055 in gold today @ $1737
3. $55,000/oz requires 18 ounces or $31,266 in gold today @ $1737
4. $40,000/oz requires 25 ounces or $43,425 in gold today @ $1737
5. $25,000/oz requires 40 ounces or $69,480 in gold today @ $1737

Looking at the probability spread, one could say there is a 95% certainty that gold will between $25,000 and $85,000 per ounce. If one were conservative you might assume the lowest figure ($25,000) was going to actually occur and therefore you would acquire 40 ounces. There is only a 2.1% chance that gold will be lower than this. If one was willing to carry more risk, he would choose the high side figure ($85,000) and acquire 12 ounces. There is however a 97.9% chance the price will actually be lower. $55,000 represents the most likely outcome with a 50/50 chance of happening.

I say everyone should at least start with a gold valuation of $85,000 as a minimum. This will require the least amount of gold and will be the smallest allocation as a percentage in your portfolio. This is for the huge skeptics or for those who do not care to look under the hood to find out how these valuations are possible.

For those who feel more inclined to believe gold can achieve these levels or for someone who decides there is something interesting in this Freegold concept and continues to study it, I would use the $55,000 figure which would require additional gold purchases and an increase in gold as a percentage of portfolio allocation.

For those who are sold on the concept of Freegold and the certainty of it in the future, it would only make sense to increase gold allocation. Therefore I would target the highly unlikely $25,000 level, which would require the most gold and the highest allocation percentage within the portfolio. This is literally my worst-case scenario for the Freegold price with only a 2.1% chance of being lower.

I have 100% of all my stored wealth in physical gold. I have acquired over 400 ounces since I started buying at 450 per ounce. I will continue to buy physical gold until it is valued at the Freegold price. Why would I do otherwise if I weren’t 100% sure gold would at least be $10,000 an ounce. After all, probability of that occurring is 99.9% and there is still a .1% chance the price could be lower than $10,000. So lets assume that I am totally wrong with my proprietary analysis and gold has peaked and will never go above the current price in dollars, say $1800 per ounce. I will need 555 ounces to insure my $1 million in net wealth.

If I am a very conservative investor then I have literally covered all the bases with a gold allocation of 40 ounces, if my goal were to protect $1,000,000. I have only a 2% chance that I will come up short. So the natural response is to increase physical gold allocation to account for the possibility of shortfall. This process ends at the current price of gold with 0% probability of shortfall and 100% allocation of my entire net worth in physical gold. The reason I can 0% chance of shortfall is because gold retains value regardless of price in infinitely flexible dollars. If gold price falls below the current price and continues south, it means simply the dollar is gaining strength and the prices of things are falling. Another way of saying it that it would require less gold to purchase real things. So the loss of nominal value in dollars is counter-balanced by lower prices of things that can be purchased with gold.

Effectively a 100% allocation in physical gold makes me a saver instead of an investor. An investor takes on risk to expand his net wealth. He trades his exposure to risk for a yield that he hopes will outpace inflation. A saver simply wants his wealth preserved with zero risk of capital. In my view the risk associated with loss of capital is too high for too little yield.

So lets look at the lay of the land from some high vantage point. Has there ever been a sustained period of time where prices have fallen or simply remained stable since the creation of the Fed back in 1913?  The answer is a resounding NO! There has been positive monetary inflation such that the current dollar has only 3 cents of purchasing power remaining as compared to the pre-Fed dollar. In fact our monetary system based on debt as the reserve asset must have positive inflation or it simply collapses.  Our global financial system is debt saturated and is attempting to rectify that situation by forcing debt default. The managers of the system cannot allow this process because the assets of the system are themselves made of this defaulting debt. Debt default wipes out both sides of the balance sheet. It is the essential flaw of a system that “saves” in the same thing that is used to produce credit.

From our high vantage point it is clear that physical gold cannot lose real value and is the ideal vehicle for the saver. At times it may not be the best for the investor, depending on where the investor finds himself within the expansionary monetary cycle, the time of duration for investment, and his tolerance for risk. Most people see themselves as savers when in reality they are investors. If one is attempting to grow wealth than one is an investor. I think everyone’s goal is to grow their wealth until they can stop investing and commence to draw down their wealth. That is my goal.

As it turns out there is a unique opportunity that only comes around maybe once in a lifetime. This opportunity offers the best of both worlds to the intrepid investor/saver, capital growth and no risk capital preservation. This opportunity comes at the end of the lifespan of a debt based monetary system. This time is a time of transition from dependence on debt to dependence on equity as the reserve asset. During the dying process, physical gold acts a savings vehicle by preserving wealth. This is the function of gold today. At the moment of death for our monetary system, a new monetary system is born where the very definition of “gold” undergoes a transformation from one largely based on credit to one totally based on equity. The transformation releases “hidden” and latent value that was always there but never utilized. This one time reset in value is leverage that the investor seeks to enable growth in wealth. This is why so little physical gold is needed to completely insure a very deep pool of paper wealth.

So I challenge anyone to find a flaw in the logic I am offering. Why don’t we just do away with Ron Mullis’ opinion and go with so called professionals who nearly all prescribe a 5-10% exposure to gold as hedge. Lets look at what that means:

Note: all gold ounces rounded up to next whole number

Net Worth                  Gold Allocation                       Ounces

100k                           10k                                         6

200k                           20k                                        12

.                                   .                                               .

.                                   .                                               .

500k                           50k                                        30

.                                   .                                               .

.                                   .                                               .

1000k                        100k                                      60

So the pros say that someone with 100k in net worth should possess 6 ounces of gold. 500k requires a total exposure of 30 ounces of gold and 1 million requires 60 ounces. Lets compare those results to my plan:

Net Worth                  Gold Allocation                       Ounces

Conservative Plan: (Net Worth/$85,000)

100k                           3.54k                                     2

200k                           5.31k                                     3

.                                   .                                               .

.                                   .                                               .

500k                           10.62k                                   6

.                                   .                                               .

.                                   .                                               .

1000k                         21.24k                                  12

Average Plan: (Net Worth/$55,000)

100k                           3.54k                                      2

200k                           7.08k                                      4

.                                   .                                               .

.                                   .                                               .

500k                           17.7k                                      10

.                                   .                                               .

.                                   .                                               .

1000k                         33.63k                                   19

Aggressive Plan: (Net Worth/$25,000)

100k                           7.08k                                      4

200k                           14.16k                                   8

.                                   .                                               .

.                                   .                                               .

500k                           35.4k                                      20

.                                   .                                               .

.                                   .                                               .

1000k                         70.8k                                      40

Matrixsentry says you need no more than 4 oz. of physical gold to insure 100K of net worth, no more than 20 oz. for 500k in net worth, and no more than 40 oz. for 1000k in net worth. This is assuming you are a BIG believer and go aggressive. If you are a raging skeptic like Rick Meadors your required allocation is 2, 6, and 12 oz. respectively. Basically I am saying a raging skeptic like Rick should allocate a mere 20% of what most professional money managers recommend! A Big Believer need only allocate 66% of what professional money managers recommend for gold exposure. Of course intrepid investors can allocate more up to 100% and will be rewarded handsomely and to such an extent that wealth is greatly expanded, not just preserved.

So it is what is. Financial Death Insurance is literally a no-brainer.

In fact it is so good that you can extend the concept and come up with some interesting things. How would you like that 1 million dollar lump sum retirement back? Easy, just allocate the appropriate number of ounces of physical gold prescribed by your level of knowledge and belief. Why just preserve capital when you can grow it? How about early retirement? Just allocate enough to replace the earnings for each year remaining before your mandatory retirement. The fun never ends, so go as far as you want!

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