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What makes life insurance work, then, is that in large groups (one million or more) of individuals, there is a high degree of certainty on how many of those one million will die each year. During times of plagues, wars, peace, and terrorist attacks such as 9/11, the likelihood is fairly constant that in a group of a million 37-year-old males, one thousand will die this year.

No one can say when a specific individual will die. Thus, insurance companies can create a viable economic model to insure certainties, as long as the distribution of risk is determinable.

Because we don't know when someone healthy enough to qualify will die, the timeframes are likely to span many decades, making life insurance a financial intangible. Furthermore, life insurance is not typically thought of as something one would touch or "enjoy" during the life of the insured. When purchased in large amounts, the premiums paid can be substantial without a current benefit other than peace of mind. So with almost $1.6 trillion "individual" (as opposed to group, credit, etc.) life insurance policies purchased in 2000, why do people buy so much life insurance? Of course there are many reasons, but at a practical level it boils down to this: We buy life insurance either because we love someone or because we owe someone.

The human body contains roughly $9.80 worth of chemicals and useful minerals. At the other end of the financial scale, human life value is a calculation of what we're worth as economic beings, and it takes into account our education, talents, and income earning potential. The calculation of human life value is most usually made in wrongful death lawsuits where a family is arguing for indemnification of the loss of the breadwinner's current and future earnings. For individuals in their 30s earning $100,000, the human life value can easily be projected in the $3-$5 million range when inflation and natural increases in salary are projected through a normal life expectancy. Ultimately, it is this capital sum that is deployed to replace the individual's earning capacity.

 

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