This subject seems easy at first but gets a bit tricky.
whats the relationship between financial wealth and life insurance??
Logically..i would say negative… but i rmember reading in the notes that it has a positive relationship…
anyone?
thx
The relationship is really between human capital and life insurance. The more human capital you have => the more life insurance you need. Life insurance is there to protect against the loss of human capital. If you have financial wealth and no human capital, ie you are retired, then you do not need life insurance. So there is an inverse relationship between financial wealth and life insurance.
That’s the basic idea. There are a lot of tax advantageous strategies to using life insurance coupled with relatively high financial wealth that are outside of the scope of the exam.
I remember reading about as financial wealth increases, the demand for life insurance decreases. This is because as financial capital increases, human capital (in theory) decreases. Therefore, you would have less human capital to insure an less demand for insurance.
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