There’s a very interesting and scholarly article on life insurance and human capital from OnWallStreet.com. It’s written by Peng Chen who is a PhD and the chief investment officer at a major investment firm.
This is a technical article about the value of one’s life financially. This concept is also called human life value. The article talks about life insurance in investment terms. Here’s another great quote from the article: “Life insurance is a perfect hedge for human capital in the event of death.” (Hedge = An investment position taken in order to protect oneself from the risk of an unfavorable price move – partial definition from investorwords.com)
Also, from the article: “One unique aspect of human capital is mortality risk–the loss of that capital in the event of death. Life insurance has long been used to hedge against mortality risk. The greater the value of human capital, the more life insurance the family should have.” The value of human capital is the value of one’s future earnings and investment growth.
The point here is that one hedges (protects against risk) againstthe loss of time to build one’s net worth because of death. Who has the risk? The family and loved ones. This is a wonderful explanation in purely analytical terms of a financial product that one obtains because of love and caring. One disagreement with the article is the supposition that one may not need life insurance as one gets older. I’m not sure that the spouse or children of someone who has gotten older would agree with that. Not every investment plan comes about as planned.
Also by having life insurance later in life one can creat a liquid asset that helps with taxes if one’s estate has grown. Having life insurance after retirement allows one to “spend down” other assets to enhance retirement because the life insurance makes sure there is an inheritance so one can then draw down income from a house (reverse mortgage for example) or take a more aggressive payout from retirement accounts.