Principles of Life, Health and Disability Insurance

From the 19^th addition of the Florida Life, Health, and Variable Annuity Study Manual FAIFA

Roles of Insurance

Through the centuries, people have pursued financial security for themselves and those who depend on them. We all have a compelling need for security; security is peace of mind and freedom from worry. Insecurity is doubt, fear, and apprehension. Most economic action we take are to satisfy some need and thus attain some degree of security.

Unfortunately, complete financial security has been elusive, in part because of certain universal problems: sickness, accident, and disability. These problems can strike at anytime and without warning. The emotional stress these problems bring is increased by financial hardships that are almost certain to follow.

Death may strike anyone prematurely. When death takes the life of a family provider, surviving family member often suffer if they are left without an adequate income or means to provide even basic necessities. However, some people face the unpleasant prospect of outliving their income - retirement may be forced upon them before they have adequately prepared for a non-income-earning existence. Sickness and disability can also leave economic scars, often more intense than death. An accident or illness can easily result in catastrophic medical bills or the inability to work for months or even years.

Insurance has evolved to produce a practical solution to all such economic uncertainties and losses.

Life Insurance, which is based on actuarial or mathematical principles, guarantees a specified sum of money upon the death of the person who is insured.

Health Insurance’s also evolved from scientific principles to provide funds for medical expenses due to sickness or injury and the loss of income during a disability.

Annuities provide a stream of income by making a series of payments to the annuitant for a specified period of time or for his lifetime. The true significant of insurance is it’s promise to substitute future economic certainty for uncertainty and to replace the unknown with a sense of security.

Economic Basis of Life and Health Insurance

To fully appreciate the purpose and function of insurance, it is important to understand that it’s roots lie in economics and the concept of the Human Life Value.

It has long been recognized that individuals have an economic value that can be measured in part by their future earning potential. This earning potential is the sum of one’s net future earning or, more precisely, the dollar value of an individuals future earning capability. The true significance of this earning potential extends beyond the individual to those who depend on him or her for their financial security. Thus, by definition, human life value is the value today of an individual’s future earnings that are devoted to his or hers dependants.

In the abstract, human life value is the means by which homes are purchased, college educations provided, monthly bills paid - in short, it is the essence of a individual’s or families economic existence. Yet this value is subject to loss through death, retirement, disability, or poor health - any one of these perils affects earning capacity to one degree or another and, consequently, diminishes human life value. It is for this purpose - to conserve and protect human life value - that Life and Health insurance exist.

Click Here to view our Slideshow Presentation
on Life Insurance

Previous Page