A New Concept of the Economics of Life Value and the Human Life Value: A Rationale for Term Insurance as the Cornerstone of Insurance Marketing

Abstract

The concept of insurable value of a human life, despite its central importance to life insurance, is not carefully developed in the literature. This article attempts to clarify the concept of insurable value and to carefully distinguish it from the related concept of economic or human life value. The article then states a method of measuring insurable value and of relating this measure to the life insurance product. Finally, the article traces some of the marketing implications of the proposed view of insurable value. Many of these implications relate to the issue of the role of investment life insurance and the uses of term insurance. The measurement of insurable value is central to life insurance from both a theoretical and marketing point of view. Juan B. Aponte, Ph.D., C.L.U., is Associate Professor of Insurance at the University of Pennsylvania. He has participated in the establishment of various governmental and private insurance programs, including, among others, a mortgage guarantee insurance program for the Commonwealth of Puerto Rico's Housing Bank and various cooperative insurance programs in Puerto Rico and Latin America. He is a member of the Insurance Development Bureau of the International Cooperative Alliance and a member of the American Academy of Actuaries and the Conference of Actuaries in Public Practice. Herbert S. Denenberg, J.D., LL.M., Ph.D., C.P.C.U., C.L.U., The Harry J. Loman Professor of Property and Liability Insurance at the Wharton School of Finance and Commerce, University of Pennsylvania, is book review editor of the Journal of Risk and Insurance and PresidentElect of the American Risk and Insurance Association. He is co-author of Risk and Insurance and Life Insurance and/or Mutual Funds and is a frequent contributor to this Journal. He recently served as Special Counsel and Research Director of the President's National Advisory Panel on Insurance in Riot-Affected Areas and is now serving as Special Consultant to Mayor Walter E. Washington of Washington, D.C. This article was submitted in April, 1968. The authors wish to thank the follnwinr nerWhether attempting to program the needs of a specific individual or to design a policy for mass marketing, the insurer must base its marketing philosophy on some underlying measurement of insurable value. To the extent that the controlling measurement of insurable value is unsound, the resulting marketing philosophy is also likely to be unsound. Since insurable value theory and the related theory of human life value is in a deplorable state, sometimes more generously described as an 'underdeveloped state, it would not be surprising to discover some resulting distortions in marketing philosophy. This paper is an attempt to clarify the concept of insurable value, to distinguish it from the concept of economic (or human life) value, to describe a more satisfactory method of measuring insurable value for marketing purposes and its consons for reading and commenting on an earlier version of this article: Francisco Bayo, Joseph Belth, J. Robert Ferrari, Dale Gustafson, Sajjad Hashmi, H. Felix Koman, Dan M. McGill, Jack McKnight, James A. Wickman, and Ellis Wohlner.