The human life value approach to determining a person’s life insurance need assumes that professional workers reach their maximum annual earnings at about what age?
The correct answer and explanation is:
The correct answer is about 50 years old.
The Human Life Value (HLV) approach to determining life insurance needs calculates the economic value of a person’s life based on their future earning potential. This method assumes that a person’s future earnings can be quantified and that this value can be used to determine how much life insurance is necessary to replace their income in the event of their death.
In the case of professional workers, the HLV approach assumes that individuals typically reach their maximum annual earnings around the age of 50. This is based on the general career progression pattern where individuals usually gain experience, skills, and seniority over time, leading to peak earnings in their late 40s or early 50s.
The rationale for using this assumption is that by the age of 50, most individuals in professional careers have accumulated a wealth of experience and expertise, making them valuable assets to their organizations. Their income levels tend to stabilize and reach a plateau during this period. After this age, while salary growth may continue, it often does so at a slower pace compared to earlier years.
Therefore, when determining life insurance needs using the HLV method, it’s common to project an individual’s potential earnings until they reach this peak point. After this, calculations focus on the economic loss to dependents if the individual were to pass away prematurely, based on their peak income.
This approach has its limitations, as it does not account for factors like inflation, changes in career trajectory, or the economic conditions that may affect an individual’s income. However, it provides a straightforward and practical method for assessing life insurance needs based on a person’s earning potential over their working life.