Principles of Risk Management and Insurance, 13th Edition

Application Questions

1. Richard, age 45, is married with two children in high school. He estimates that his average annual earnings over the next 20 years will be $60,000. He estimates that one third of his average annual earnings will be used to pay taxes, insurance premiums, and the costs of self-maintenance. The remainder will be used to support his family. Richard wants to calculate his human life value and believes a 6 percent discount rate is appropriate. The present value of $1 payable for 20 years at a discount rate of 6 percent is $11.47. Calculate Richard’s human life value.

2. 1. The human life value is one method for estimating the amount of life insurance to own. Keeping all other factors unchanged, explain the effect, if any, of each of ...