International Styles

Capitalization of the Value of a Human Life and Indemnification of That Value

Recognising the value of a human life from both the family and the business standpoint (the two being nearly always closely interrelated), it should nest be noted that life insurance constitutes the only safe method of indemnification against the loss of that value through death. Briefly stated, life insurance makes possible the capitalization of that value. By furnishing this capitalized value in the event of death, life insurance may be said to perpetuate the earning capacity of the life for the benefit of those dependent upon it. Through experience and toil the human life may be constantly growing more valuable, the dependent family in the meantime becoming more and more accustomed to a higher standard of living, and suddenly this entire value may be swept away by death. Unless some substitute some sort of hedge can be found there will be nothing to take the place of the economic value of the deceased. Life insurance constitutes such a hedge and it should be the purpose of every man who has assumed family obligations to take out such an amount of insurance to capitalize himself to such an extent that the principal if put out at the current rate of interest will yield an income equivalent to from one-third to one-half of his earning capacity during life. Nearly all other values are being capitalized in this modern age, and it is entirely proper, in fact essential, that the value of a human life should also be capitalized.

This naturally brings up the question as to how much life-insurance protection should be taken out for dependents. While this is a practical question opinions differ greatly and everyone must answer the question according to his opportunities and obligations. One rule which has been frequently advanced, and which assumes that there should be a continuance to the family of at least one-half of the current income earned by the insured at the time of death, is to the effect that " A. man's life insurance should be large enough, when invested at the current rate of interest, to produce an income half as large as he earned while living. Others try to arrive at some rough answer to this question by ascertaining the principal which ought to pass upon death to the family of the insured in order to purchase an "income equal to the insured's probable earnings should he survive". Assuming that a $500 income is under consideration, the following table will serve to indicate the present value, at 4 percent, interest, of such an income during the expectancy of life at various ages, according to the American Experience table of mortality. Thus, as the management of one company states: "At age 30, a sum of $9,332, computed at 4 percent, interest, or of $8,187, computed at 5 percent., would be required to produce an income of $500 per annum for thirty-five years, which is the life expectancy of a person aged 30, and an insurance of $9,332, or of $8,187, according to the rate of interest, would be required to indemnify his family fully for the loss of $500 income which would be occasioned by his death thirty-five years in advance of his expectancy". If an income of $1,000 per annum were under consideration the amount of insurance would be twice that indicated.

Age Expectancy Insurance Value 4% Insurance Value 5%
25 38 $9684 $8434
30 35 9332 8187
35 31 8794 7796
40 28 8331 7449
45 24 7623 6899
50 20 6795 6231
55 17 6083 5637
60 14 5281 4949

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