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 |
|