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Guidelines for Individual Agents for Persistency of Life Insurance Policies
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 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 rupeesÂ 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 elephantâ€™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 very limited use, say like lottery payable on death. However, very few liken general insurance with lottery, because it is easy to comprehend the loss of an ordinary asset, not so of a human life.