Page 9 - IC23 life insurance application

explain the mechanism as to how insurance is only a system of pooling risks and

resources.

While in case of insuring the physical assets like a house, a factory, a motor car etc,

it is possible to determine its replacement value, and therefore one can determine

the exact amount for which the asset has to be insured. Say a car costs rupees one

lakh. Therefore an insurance of the value of one lakh is a fair estimate for insurance

purpose. But in case of life insurance, it is difficult to determine the replacement

value of the individual, in terms of his probable future income which is going to be

lost in case of his sudden death.

Human Life Value :

Prof. S. S. Huebner, the famous social scientist of America published his treatise on

this subject of human life value in 1927. He proposed the human life value concept

as a philosophical framework for the analysis of basic economic risks faced by

individuals. Those who earn more than they need for self-maintenance, are valuable

for those who depend upon them. It is true that this value cannot be determined

exactly, because the earning ability depends upon education, personal drive,

personality, character, health, training, experience and host of other factors equally

difficult to evaluate.

How to measure :

Presume a bread winner as a money earning machine. He is of the age of 30 and

earns say Rs.50000/- per year excluding his personal expenditures. Even at the

constant rate of Rs.50000/- for the next 30 years, the family will get an economic

value of 50000 x 30= 15,00,000 i.e. 15 lakhs. What we need is Rs.50000/- per year

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