Briefly explain how the human life value approach differs from the needs approach in determining the amount of life insurance an individual should purchase. What is the relationship between the two approaches?
The human life approach considers the amount that the insured's family would be paid in case of death based on the financial loss incurred. This approach considers the earnings of an individual as well as age and years to retirement.
Delegate your assignment to our experts and they will do the rest.
On the other hand, the needs approach considers the gap left by the death of the wage earner and attempts to identify all the expenditure due to the insured's death and further expenditure that may accompany the readjustment period. This approach considers the needs of the persons who would suffer the most if the wage earner passes.
Despite differing, these two approaches have a relationship in determining the insurance amount required, given a particular condition (Emmett & Therese, 2014).
What, if any, are the defects in using the human life value concept in determining the amount of life insurance an individual should purchase?
The human life value approach tends to be concerned with an individual's income during his/her lifetime more than the compensation after a loss. This approach does not consider whether an incurred loss would result in deprivation of finances to the dependents.
The need for life insurance varies with the individual's lifestyle. How does this need differ for single individuals, childless couples, and persons with children?
For the individuals who are single without any dependents, the needed life insurance would be to cover indebtedness and funding previous expenditure. Single individuals may have dependents who might be parents, children (widowed or divorced). In this case, the insurance would be for death protection in case the wage earner passes.
Childless couples, just like the single individuals, the need for life insurance is low, especially if both of them are employed and are earning. Life insurance for childless couples mainly aims at covering indebtedness in addition to covering final expenditure. Childlessness state, if temporary, then the need for future insurability needs to be considered.
For persons who have children, there might be two scenarios. First, the parents may both have employment away from home and insured. Here the living standard is great, but hangs in the balance the moment one source of income is lost. As such, the living standard has to be sacrificed. Second, one parent may be the wage earner, and another is a homemaker. Here, all the attention would be put on the insurance of the wage earner. Also, the homemaker may contribute economically to the home, and therefore their loss would mean a financial burden to the family (Emmett & Therese, 2014).
Identify the "needs" traditionally considered in determining the amount of life insurance required for a family.
Traditionally, the needs for life insurance are income and cash needs. Cash needs are concerned with the liquid amount needed at death, i.e., emergency funds, educational funds, funds for last debts and expenses, and funds for mortgage payments, thus cushioning the dependents after their loss. Income needs, on the other hand, are categorized into three groups. These groups are readjustment funds, spouse's lifetime income, and dependency period income to provide continued support for the family (Emmett & Therese, 2014).
Identify the sources other than life insurance that might provide resources to meet needs in the case of premature death.
Expenses that arise directly after the death of an individual like burial expenses, among others, may be covered by the assets the individual owned at the time of death. The survivors of the individual can cover the burial expenses. Other sources include personal savings, social security, reimbursements, and workers' compensation, among others (Emmett & Therese, 2014).
One tool for dealing with the risk of outliving one's income is a life annuity. Briefly explain how a life annuity is able to do this.
Life annuity liquidates the principal sum irrespective of the way the accumulations occurred throughout the annuitant's lifetime. The process may involve liquidation of the amount derived from an individual's savings (not excluding the annuity) or liquidation of life insurance cash values or the benefits to be accrued at death in the form an of life income towards the beneficiary or to whoever owns the policy (Emmett & Therese, 2014).
Identify the resources that might be available to address the retirement risk.
Several resources can be availed in addressing retirement risks. In most cases, these resources are known as "four pillars of retirement" (Emmett & Therese, 2014). These pillars include social security, profit-sharing, qualified pension, personal savings, and employment (Emmett & Therese, 2014).
Explain why the disability needs for a particular individual are likely to be even greater than the needs in the case of premature death.
Unlike premature death needs, disability needs tend to be greater since the earnings of the wage earner stop the moment they become disabled; it more like death has occurred already. When the wage earner of the family is disabled and passes, the income of the family stops. As a result, the expenses may remain the same and thus increase. Disabled person(s) is defined as "one whose ability to work is impaired"; they must rely on other income sources apart from employment. What is more, as burdensome as to its financially to the family/dependents and the individual, there is a greater chance of losing through the ages compared to the chances of dying (Emmett & Therese, 2014).
How should one deal with the dilemma created because disability resulting from sickness may extend beyond age 65, but insurers are generally unwilling to provide coverage for such disabilities beyond age 65?
Generally, insurers tend to provide income insurance coverage for the disabled up to 65 years only if they are sick. Furthermore, after reaching age 65, income needs are considered part of a persons' retirement needs (Emmett & Therese, 2014).
Identify the resources that may be available for an individual who experiences a disability.
Some resources which the disabled can use include benefits from social security for all the disabled, employer-provided cash benefits or sick leave, and benefits from worker's compensation for disabilities, which are work-related (Emmett & Therese, 2014).
References
Emmett, J. V., & Therese, M. V. (2014). Fundamentals of Risk and Insurance (11th ed.). Wiley
