Although the human life cannot be objectively be measured by dollar value there is economic value generated by current and future earnings of daily activities of a person. The basis of determining the economic value of a person applies the current and future income potential devoted to the dependents to calculate reasonable minimum amount required by dependents to support their current life style.
The objective of life policy is to provide a coverage covering the needs of the prospects at affordable premium and for required durations. Every family has unique requirements, and every family requirement necessitate different need analysis to gage the necessary policy value and affordability. A life policy program has to be selected depending on family needs and the policy purpose and financial capability of the prospect. If the prospect needs requires a greater coverage and the prospect cannot afford premiums to tender the greater coverage, a term value life policy program can be arranged to provide coverage until the financial position of the prospects improves.
In order to provide appropriate insurance program, unbiased analysis has to be performed. Some of the consideration required when performing unbiased analysis will include answering questions such as what is the main purpose of the policy, how much premiums can prospect affords, whether there will be significant changes in needs of the insured, the time period required by the policy. By questioning or encouraging the prospect to frontier his/her financial position a through analysis of coverage can be performed.
A direct approach in determining the policy covered can be performed through application of human concept value which considers prospects annual salary, annual expenses and the numbers of years left for an individual to continue earning. The approach ignores increases in wages, inflations and other sources of income. The methodology should rarely be applied because of its insufficient lack of considering inflation, other sources of income and wages increase.
Widely applied method and perhaps the most used method is the need analysis approach. The approach establish the beneficially needs incase the death of the insured. Considered factors include burial expenses, income needs to support the family after death, amount required to clear mortgages or other debts, other sources of income for beneficiaries. The need analysis will not only be limited to the earnings of the insured but can include family future obligations to send a child to college.
Premiums rate are determined by different factors. Insurance underwriters will take into considerations the age of the insured, the older the person the higher the premium because the mortality rate increases with age. Gender plays part in considering the premium rate; statistically men have a higher rate of mortality compared to women. When applying for life policy insurer expects individual to answers question on current and previous health history, this helps the underwriters in selecting the risk to insure. High risk occupations and hobbies calls for higher premiums. A worker working a white color job has less risk as compared to factory worker and will pay less premium amount as compared to the factory worker.
The risk profiling of individual is performed from information obtained from different sources. The sources include application forms, current medical examinations, medical information bureau, attending physicians’ statements, and special questioners, motor vehicles reports (MMV), inspections and credit reports. When applying for the policy it is essential for the applicant to ensure information contained in the application reflects truthfulness to his/her ability at the time of application.