Reading 13 - Case #1

[BearFlag]

Would someone mind explaining the following for me ?
This is Case #1 in CFAI book.
Thanks in advance !
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A person needs large amounts of life insurance only when facing the greatest chance of death (i.e., only for older people). To the contrary, the magnitude of loss of human capital at younger ages is far more important than the higher probability of death at olders ages.
I don’t get those sentences.

 

[cpk123]

First statement is pretty much what it says - an older person has a higher need for life insurance because probability of death is higher.
The 2nd statement - is a conundrum. A younger person - if he dies - results in loss of valuable human resource. So ideally - a younger person should take on life insurance - not the other way around. An old person - is guaranteed to die - so paying life insurance premiums to get a death benefit - is much less useful than if a younger person paid the premium and go the benefit. Your death benefit is going to be much less (and costs more) for an older person. For a young person - you pay a lower premium (since premium would be paid for longer) and provides a bigger benefit.