Life insurance is not a contract of indemnity because it is the other type of insurance contract, a "valued contract". Indemnity insurance pays a benefit equal to the financial loss and seeks to return the insured to their original financial position. It is impossible to succinctly assess the value of a life, to insure it with an indemnity contract. A valued contract pays a stated sum, regardless of the loss incurred, which is how life insurance operates.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
It’s an interesting question. Let’s take a look at some indemnity agreements and see what we can learn.
I am sure you have heard of the bird flu epidemic. I know that the price of eggs has skyrocketed and that has been reflected in the price of baked goods, and everything else that uses eggs.
The federal government is stepping in and indemnifying the losses being sustained by agricultural companies to help them remain viable. They can put a hard number on the value of their loss.
Frankly, I think the bailout of Wall Street a few years ago was one huge act of indemnification by the government. That’s a topic for another time.
War reparations are a form of indemnity. Germany was forced to pay extensive indemnity after its role in World War I. I’m sure the actuaries and examiners had a field day adding up the damage.
Sometimes you hear about nations that break away from an Empire, such as Haiti from France, having to pay indemnity to cover losses sustained by the parent nation in taxes, etc. Pretty easy to put a number on that.
Homeowners are identified against structural damage and other losses when they take out a homeowners policy. Should disasters like a bad storm occur, the insurance benefit will help the policyowner restore the home to its original state. Also easy here to identify the monetary cost
I think we can see a pattern here. Indemnification agreements make a party whole; they compensate for losses to restore the aggrieved party to its original state of affairs financially. Accurate, current numbers are used.
I can see how one would think that life insurance is a form of indemnification. You are, after all, trying to compensate for losses. If the breadwinner of the family makes $100,000 a year, then that income would be lost if he or she tragically dies. A $1 million life insurance benefit would make up for that loss, at least for 10 years worth.
The difference is that you don’t have to prove the lost. When the breadwinner dies, he or she could have been making $10,000 per year or $10 million per year. Regardless, the benefit remains $1 million.
So life insurance is considered a valued policy or contract.
As such, it is very unique. The insured is underwritten at the time of claim, and that’s that. At the risk of loss could then go up dramatically, but that benefit will remain the same.
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I am sure you have heard of the bird flu epidemic. I know that the price of eggs has skyrocketed and that has been reflected in the price of baked goods, and everything else that uses eggs.
The federal government is stepping in and indemnifying the losses being sustained by agricultural companies to help them remain viable. They can put a hard number on the value of their loss.
Frankly, I think the bailout of Wall Street a few years ago was one huge act of indemnification by the government. That’s a topic for another time.
War reparations are a form of indemnity. Germany was forced to pay extensive indemnity after its role in World War I. I’m sure the actuaries and examiners had a field day adding up the damage.
Sometimes you hear about nations that break away from an Empire, such as Haiti from France, having to pay indemnity to cover losses sustained by the parent nation in taxes, etc. Pretty easy to put a number on that.
Homeowners are identified against structural damage and other losses when they take out a homeowners policy. Should disasters like a bad storm occur, the insurance benefit will help the policyowner restore the home to its original state. Also easy here to identify the monetary cost
I think we can see a pattern here. Indemnification agreements make a party whole; they compensate for losses to restore the aggrieved party to its original state of affairs financially. Accurate, current numbers are used.
I can see how one would think that life insurance is a form of indemnification. You are, after all, trying to compensate for losses. If the breadwinner of the family makes $100,000 a year, then that income would be lost if he or she tragically dies. A $1 million life insurance benefit would make up for that loss, at least for 10 years worth.
The difference is that you don’t have to prove the lost. When the breadwinner dies, he or she could have been making $10,000 per year or $10 million per year. Regardless, the benefit remains $1 million.
So life insurance is considered a valued policy or contract.
As such, it is very unique. The insured is underwritten at the time of claim, and that’s that. At the risk of loss could then go up dramatically, but that benefit will remain the same.