Reply To: Human Capital- Life Insurance


Great question. Yes, the standard approach in is to compute the “human life value” of a person and then “fully insure.” So you’re right, other things equal, the lower the interest rate, the more death benefit someone would take out on the breadwinner of a household.

However your formula is too simple. If you make $100,000 in salary, then it would be overstating your “human life value” to say at a 10% interest rate that your future earnings are worth $1 million. This is because (a) you won’t generate that income forever and (b) you have to consume in order to stay in working condition.

So e.g. maybe you’d say that you contribute only $75,000 on net to the rest of the household, and that you could be expected to do that until age 70. So you might take out a life insurance policy discounting that future net income stream into a PDV using market interest rates.

(BTW I happen to do a lot of outside work on life insurance, so if this stuff interests you check out this website: )