Page 10 - IC23 life insurance application

and since a capital earns interest say @ 10% p.a. a capital of 5 lakhs is sufficient to

get this income every year. Thus the human life value of this person can be

reasonably fixed at rupees five lakhs only. Of course, promotion, experience,

increments would enhance his economic value. Similarly as he approaches

retirement age, his remaining economic value shall decrease.

Periodically it is necessary to reassess the economic value of the individual taking

into considerations his existing assets and liabilities. Out of his existing assets, only

liquid assets will go to reduce the need for insurance proportionately. The fixed

assets like car, house etc. need to be protected against mortgage etc. Inflation is

another factor to be considered.

Human life is the most important income-earning capital and subject to vagaries of

economic fluctuations. It needs to be protected much before other assets which the

human capital generates.

Let me finish this chapter with an ancedote. The three blindmen wanting to know

what an elephant is like, visit an elephant. They decided to go to an elephant and

touch their way to its size and shape. By chance, one person placed his hand on the

massive side, the second reached out at its trunk and the third grasped at its tail.

Thus having felt the elephant, they went away to discuss their experience.

The first blindman opined that the elephant was like a wall. The second said it was

like a tree and the third vehemently disagreed and said it was like a rope.

Each one of them had a limited experience and therefore could not comprehend the

elephant’s massive size and shape. Similarly those who have not made deep study

of the multifarious aspects of insurance, the subject of insurance appears to be of a

Copyright Dr Rakesh Agarwal Sashi Publications Private Limited

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