FINE 4050 Chapter Notes - Chapter 8: Whole Life Insurance, Term Life Insurance, Txe
12 Dec 2015
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Death benefit/face value: sum of money the beneficiary receives. Owner: person who pays the premium but is not insured. Financial problems: loss of insured"s future earnings; funeral expenses; unpaid medical bills; outstanding debts. Situations for non-insurance: already retired, no more income to protect; sufficient wealth accumulated to pass onto family members, no financial hardship will be felt; single without dependents. Chapter 8 mortality risk & life insurance. Human capital approach (hx = ghx ilx): looks at amount of after-tax human capital remaining; sets an upper bound for the coverage needed. After-tax values: want death benefit to reflect amounts of wages that were taken home after paying income taxes; death benefit not subject to taxes when received by the beneficiaries; using pre-tax income would overstate value of future payout. Removing income taxes: can use after-tax salary in the calculation with subsistent consumption; can use pre-tax salary but separately calculate present value of future income taxes for subtraction.
