When measured in terms of his or her lifetime earning capacity, an individual’s life may be worth millions of dollars. However, earning power alone does not create a need for life insurance. The financial value of any human life lies in the purposes for which the individual’s earnings might be used.
A person’s life clearly has an economic value if some other person or organization expects to benefit financially from the person’s existence. Most income producers either have dependents or expect to acquire some during their lifetimes. People without legal dependents often intend to voluntarily provide financial support to relatives, friends, and charitable or religious organizations. Whether provided during one’s lifetime or through an inheritance, this support may come from income earned during the person’s lifetime or through life insurance proceeds payable upon the person’s death.
Life insurance also serves a wide variety of purposes in the business world. The primary purposes of life insurance in business are key person indemnification, business continuation, and protection for employees and executives.
Approaches to Life Insurance
There are two basic approaches to life insurance:
- Term insurance, which is temporary.
- Cash value insurance, which provides permanent protection and involves a reserve or savings component.
Premiums are usually guaranteed for the duration of the policy, but some policy types offer flexible premiums.