Economic Value Of An Individual Life
What Does Economic Value Of An Individual Life Mean?
The economic value of an individual’s life is determined by calculating their yearly income, expected earnings until retirement, and other factors such as savings and assets. This assessment estimates the financial loss a family would face in the event of a family member’s death. The resulting calculation helps determine the amount of insurance coverage a person qualifies for.
Insuranceopedia Explains Economic Value Of An Individual Life
The death of an income provider can have significant economic consequences for the entire household. To protect against potential financial devastation, a member of the family—typically the breadwinner—acquires an insurance policy based on the estimated financial loss resulting from their death. This calculation considers the annual income, projected earnings until retirement, and other factors such as savings and assets.
While this is one method for determining the appropriate amount of insurance coverage, there is also another approach known as the needs analysis method. This method is more versatile, as it accounts for the broader financial impacts of death. In simple terms, the needs analysis approach calculates the future expenses a family may incur, including education costs, legal fees, childcare, other household obligations, and the loss of income due to the death of an employed family member.
