RM497 Exam #1Q&A
Social Insurance - =Insurance provided by governmental body (ex: Social Security)
-Income redistribution (not based on AFP)
-Compulsory participation
-Government sets premium
-Can correct market imperfections
Determining insurable value in privately insured LH policies 3 Approaches - =-Present value of a person's
earnings stream
-Human Life Value (HLV): Capital value of a person's future net earnings
-Needs Approach: Buy enough coverage to pay key needs (ex: mortgage, support for dependents)
Economic Value of Human Life Value (HLV - =Capitalized value of a persian's future net earnings
-"Net" after subtracting self-maintenance costs
-Basis for valuing a person's life in life insurance
-Often measured from the eyes of the insured person's dependents (ex: family, firm, or business)
-Used to measure the investment yielded by human capital
HLV Estimation Process - =1)Estimate mean annual earnings for rest of working life
2)Deduct taxes and cost of self maintenance
3)Determine number of years until retirement
4)Select appropriate discount rate
5)Find (1)-(2) and multiply it times PV of $1 per year for time period found in (3), assuming the discount
rate in (4)
HLV Example: Lee is a married male, age 35, planning to retire at age 65. His gross annual earnings are
$80,000 (assumed constant), with $40,000 available to support his family. Assume a discount rate equal
to 5%. Given above, the present value of $1 per year for 30 years equals 15.37. What is Lee's HLV? -
=$40,000*15.37 = $614,800
, Three roles of EB plans - =-Accomodation/Enhancement benefits
-Paid time-off
-Protection programs
Legally required EB benefits - =Social Security, workers comp, disability and life insurance. Employers
must decide how to design these plans, such as:
-Eligibility
-Financing
-Benefit levels
Design of EBs should support strategic goals of... - =the firm or organization
EB Total Comp Strategy - =Design wages and EBs to attract targeted workers
EB Proactive v. Reactive Design - =Top-down v. Backing-in approach
EB External environmental factors - =-Economic conditions and firm competitiveness
-Tax qualified EBs
-Cost of EBs
-Government impact
Demographics of the labor - =Aging workforce, DEI, gender shifts in workforce, full and part time
workers, pandemics
Collective Bargaining - =Labor unions are big advocates of EBs, but the percentage of workers in unions
has declined recently
Employers must provide the following employee benefits: - =-Workers compensation
-Family leave (does not have to pay, but must provide)
-Social Security
Social Insurance - =Insurance provided by governmental body (ex: Social Security)
-Income redistribution (not based on AFP)
-Compulsory participation
-Government sets premium
-Can correct market imperfections
Determining insurable value in privately insured LH policies 3 Approaches - =-Present value of a person's
earnings stream
-Human Life Value (HLV): Capital value of a person's future net earnings
-Needs Approach: Buy enough coverage to pay key needs (ex: mortgage, support for dependents)
Economic Value of Human Life Value (HLV - =Capitalized value of a persian's future net earnings
-"Net" after subtracting self-maintenance costs
-Basis for valuing a person's life in life insurance
-Often measured from the eyes of the insured person's dependents (ex: family, firm, or business)
-Used to measure the investment yielded by human capital
HLV Estimation Process - =1)Estimate mean annual earnings for rest of working life
2)Deduct taxes and cost of self maintenance
3)Determine number of years until retirement
4)Select appropriate discount rate
5)Find (1)-(2) and multiply it times PV of $1 per year for time period found in (3), assuming the discount
rate in (4)
HLV Example: Lee is a married male, age 35, planning to retire at age 65. His gross annual earnings are
$80,000 (assumed constant), with $40,000 available to support his family. Assume a discount rate equal
to 5%. Given above, the present value of $1 per year for 30 years equals 15.37. What is Lee's HLV? -
=$40,000*15.37 = $614,800
, Three roles of EB plans - =-Accomodation/Enhancement benefits
-Paid time-off
-Protection programs
Legally required EB benefits - =Social Security, workers comp, disability and life insurance. Employers
must decide how to design these plans, such as:
-Eligibility
-Financing
-Benefit levels
Design of EBs should support strategic goals of... - =the firm or organization
EB Total Comp Strategy - =Design wages and EBs to attract targeted workers
EB Proactive v. Reactive Design - =Top-down v. Backing-in approach
EB External environmental factors - =-Economic conditions and firm competitiveness
-Tax qualified EBs
-Cost of EBs
-Government impact
Demographics of the labor - =Aging workforce, DEI, gender shifts in workforce, full and part time
workers, pandemics
Collective Bargaining - =Labor unions are big advocates of EBs, but the percentage of workers in unions
has declined recently
Employers must provide the following employee benefits: - =-Workers compensation
-Family leave (does not have to pay, but must provide)
-Social Security
