jmh530

june2009 Wrote:
-------------------------------------------------------
> Mechanics are:
> human cap = PV of all your future earnings
> discounted back to today.
> insurance is a substitute for human cap
> if earnings are volitile you discount at a higher
> rate, making PV (human capital) lower
> if the PV (human capital) is lower, one would need
> less of a substitute to replace it - relative to
> someone with a higher PV.
>
> I hate it...but I accept it.


why do u hate it ....explanation makes sense to me ..................human capital = pv of future earning ============> higher vol implies greater discount rate ==============> lower present value =========> lower need for insurance to replace the possible future earnings.................also please note the premiums reduces the amount that can be invested in equities fixed and alternative investments dont forget high life insurance payouts come with higher premiums