Life insurance content: “What is life insurance?”

As I continue to work with this digital insurance strategy, I continue to write some content for the venture. Here is a post I wrote about the question, “What is life insurance?” Enjoy!

The Chartered Life Underwriter (CLU) curriculum through The American College included, in 1998, a required textbook for students written by Dr. Dan McGill, professor emeritus at The Wharton School of the University of Pennsylvania.  I grabbed McGill’s Life Insurance from my shelf to look for his definition.  Dr. McGill wrote:

“A human life possesses many values, most of them irreplaceable and not conducive to measurement.  These values are founded on religious, moral, and social relationships…  Such values, however, are not the foundation of life insurance…  life insurance is concerned with the economic value of a human life, which is derived from its earning capacity and the financial dependence of other lives on that earning capacity.”

This definition always seemed somewhat antiseptic to me.  In contrast, Roger, a senior life insurance agent I worked with in 1999, offered clients another definition.  Roger would say, “life insurance is a love letter, delivered by an insurance company when you are no longer able to hand it to your family personally.”

Roger’s language always felt sincere to me;  Yet, I could never say those words with a straight face.  In my words, life insurance is a financial commitment, sold by an insurance company and purchased by a person or business, to create some level of financial certainty around a person’s survival.  In exchange for this improved certainty, the buyer pays a premium to the insurance company.

There are many nuances to the insurance transaction and types of products and insurers in the ecosystem.  There are mutual and stock insurers;  There are participating and nonparticipating products;  There are permanent and term policies.  There is also important nuance between business-owned policies and individual policies, as well as distinctions between applicants, owners, payers, and insureds.  In each case, though, an insurer is providing some incremental certainty in exchange for a premium.

In other words, life insurance is one means by which a person can assure their financial legacy.