Page 15 - Life Assurance
P. 15
son. The present value of these earnings is
then the measure of loss.
2/4/2 Capitalization of Income Approach:
One method of determining this value is to
find a sum of money which, when paid in
installments representing both principle and
interest over the remaining working life of the
worker, will produce the same income (except for
taxes and allowances for the former support of the
worker) as the worker earned before .
The method is termed the capitalization of
income. This amount once calculated represents
the amount of the life assurance that would be
necessary to ensure the full economic value of
the person and to replace the net income that
was formerly produced.
To illustrate (explain), suppose a
breadwinner age is 35 expected to earn an
annual fixed amount, say 13500 L.E over the
remaining working years. Assuming that
retirement age is 60, the remaining working
years number is 25 years, and the worker would
normally be expected to earn a gross amount
318,000 L.E.
Life21/life/life08
32
then the measure of loss.
2/4/2 Capitalization of Income Approach:
One method of determining this value is to
find a sum of money which, when paid in
installments representing both principle and
interest over the remaining working life of the
worker, will produce the same income (except for
taxes and allowances for the former support of the
worker) as the worker earned before .
The method is termed the capitalization of
income. This amount once calculated represents
the amount of the life assurance that would be
necessary to ensure the full economic value of
the person and to replace the net income that
was formerly produced.
To illustrate (explain), suppose a
breadwinner age is 35 expected to earn an
annual fixed amount, say 13500 L.E over the
remaining working years. Assuming that
retirement age is 60, the remaining working
years number is 25 years, and the worker would
normally be expected to earn a gross amount
318,000 L.E.
Life21/life/life08
32
