Question

What are the factors taken into account while using the human life value method to arrive at the insurance cover amount?

a.

Before tax earnings, expected number of years the income will be earned, annual estimated increase in income, risk-free rate

b.

After tax earnings, expected number of years the income will be earned, annual estimated increase in income, risk-free rate

c.

After tax earnings, expected number of years the income will be earned, annual estimated decrease in income, risk-free rate

d.

After tax earnings, expected number of years the income will be earned, annual estimated increase in income, high-risk rate

Posted under IC22 Life Insurance Underwriting

Answer: (b).After tax earnings, expected number of years the income will be earned, annual estimated increase in income, risk-free rate Explanation:The human life value method takes into account the after-tax earnings, expected number of years the income will be earned (remainder of working life), annual estimated increase in income (salary rise), and a discount factor for future earnings (risk-free rate like the PPF rate).

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Q. What are the factors taken into account while using the human life value method to arrive at the insurance cover amount?
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