Posted: October 23rd, 2013
Acad. Writing & Reading
June 4 2013
The Concept of Human Life Value in Relation to the Need for Life Insurance
Jane and Andrew had just celebrated their fifth year wedding anniversary, and they were coming from dinner when they had an accident. Unfortunately, Andrew did not survive, and Jane became paralysed from the waist down. With no one else to turn to and no way to make an income, Jane had to go back to her parents, where she became dependent on them for the rest of her life. This is a sad situation, but, unfortunately, it represents the story of many families, who are unprepared when fatal accidents happen. The families are left suffering when they lose their breadwinner. Had Andrew and Jane thought about their lives in the future, they would have purchased a life insurance policy, which would have enabled Jane to survive comfortably and even pay for her medical treatments. She would have avoided returning home to her aging parents for care.
The rapid changes in life necessitate the acquiring of a life insurance policy. This is a sound financial plan that will ensure that your loved ones are not left destitute but are well taken care of and continue to enjoy a brighter tomorrow in the case of an unfortunate event to you, as the insured, especially if you are the breadwinner. Life insurance is also vital to you in the event that you are disabled. Employers can also benefit from purchasing a life insurance for their employees (assets) to regain financial cover in the event that they lose their lives or they are rendered inefficacious in a way that they can no longer work to make profits for the company. This is referred to as insurable interest.
Life insurance/assurance is a security against loss of income resulting from the demise of the insured. The mentioned beneficiary receives the proceeds, and he is thus secured from the financial repercussions that would have occurred owing to the death of the insured. This paper thus aims at looking at the concept of human value in relation to the need of acquiring a life insurance. Some of the relevant sections that will act as principal topics of discussion will include the basic principles of life insurance, the benefits of life insurance, a focus of human value and the advantages disadvantages of life insurance.
The human life possesses numerous values, most of which are immeasurable. For example, a person’s relationship with others creates a set of sentimental and emotional attachments. These can barely be measured or replaced with monetary value. However, such values are not the basis for life insurance even though it upholds a strong moral and social concern. The basis for the need of a life insurance cover is the fiscal worth of a human life. With regards to life insurance, the human life has monetary value in terms of its earning capacity only if someone/people or an organization depends upon it or anticipates gaining some financial benefit through it. This secures the economic state of the beneficiary in terms of financial dependence and future savings for fear that there is a negative contingency.
Determining the fiscal value of human life helps in identifying the amount of life insurance needed by the beneficiary. The simplest way to work this out is by evaluating all what you pay for and whom you support. These might include things like educational costs, health insurance, mortgages, personal loans, rent, credit card debts, food and groceries, and car insurance among others. Out of these, you can then deduct the things that your family can comfortably do without such as stocks and property investments. The overall amount you get is what determines the level of life insurance that you need (Baldwin 60).
Investing in a life insurance policy demands a high level of sacrifice. Life insurance encourages people to be responsible for their own families and the society (Mishra 6). This means that you voluntarily opt to continue providing and catering for your dependant’s wellbeing after death. However, the law morally obliges you to provide for your family to the extent that your financial means permit. A life insurance cover ensures that this moral obligation and financial decency persists after death. The death or disability of the head of a family should not necessarily lead to bankruptcy or financial problems for the family. However, it should be realised that the economic value of human life diminishes with the passage of time. As much as a person’s income may tend to increase indefinitely, the period of productivity lessens as each year passes. This owes to the fact that an individual’s fiscal value is indeed the unrealized earning ability in terms of skill, and it eventually diminishes as potential income is gradually converted into actual income.
The basic principles of life insurance include the principle of Utmost Good Faith. The insurer and the insured should have good faith towards one another (Gulati 39). The insurer must provide the insuree with complete and correct information with regards to terms and conditions that apply while the insured should also be willing to disclose complete, clear and correct information of the subject matter. The other principle is the law of large numbers whereby the insurance company uses a large sample size to predict deaths. All life insurance principles operate with this principle. They carefully approximate mortality rates annually to balance their resources.
Another principle is the insurable interest. This is whereby the insured, must have some personal relation to the policy owner, receives economic compensation in the event of death of whom they depended on. Perfected savings is another principle of life insurance where you purchase death assurance to your loved ones. This principle is, however, limited with regards to a pre-set time or a predetermined age, upon which the contract matures and compensation are made. In the event of a policyholder’s demise before the pre-set period, the insurer compensates the insured. The transfer of risk is a further vital principle for life insurance. The risk of death is not retained in your policy but spread out among all policyholders with relations to the insurer. The last principle of life insurance is the loss of minimization. This means that the policyholder needs to be careful to reduce the risk of death. This includes careful driving, indulging in proper lifestyle issues and maintaining your health as much as possible. The cost of insurance is heavy in the realization that you do not uphold the principle.
There are numerous advantages that come with life insurance, such as the immediate infusion of cash when dealing with adverse fiscal consequences of the policyholder’s death. Life insurance guarantees protection of one’s family. The tax treatment for life insurance is quite favourable. The death benefits are usually income tax- free to the insured. It is possible for the life insurance to be exchanged for another policy such as annuity without the incurrence of current taxation. Another advantage is that it facilitates loans without affecting the benefits of the policy (Sethi and Bhatia 181-182).
The life insurance policy just like any other has its cons. These include the fact that policyholders forego some current expenditure for the sake of the insured. The surrendered cash values are generally less than the premiums paid, and at times, it is impossible to recover them fully. You may outlive your insurance term and obtain no monetary benefit from the premiums you paid. The insurer also does not provide you with a permanent life insurance protection.
Many people are willing to get insurance covers for their properties, but they are not willing to take life insurance, even though life is more valuable than property. The many adversities and uncertainties of life demand that a person acquire a life insurance policy. This is an indispensable measure if you care for the life of those who depend on you. Taking a life insurance cover is proof that a person cares for his or her family, and is concerned about their welfare in case of any eventuality. Some people put off taking life policies because they think that they will be okay so long as they take care of themselves. However, it is not possible to predict death, and it is prudent to consider taking a life insurance policy.
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Baldwin, G. Ben. The Complete Book of Insurance: The Consumer’s Guide to Insuring Your Life, Health, Property, and Income. Burr Bridge: Irwin Professional Publishing, 1996. Print.
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Gulati, C. Neelam. Principles of Insurance Management: A Special Focus on Developments in Indian Insurance Sector Pre and Post Liberalisation. New Delhi: Excel Books India, 2009. Print
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Sethi, Jyotana and Nishwan, Bhatia. Elements of Banking and Insurance. New Delhi: PHI Learning Pvt. Ltd., 2007. Print
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