If you have a very secured job you would discount your future cash flows by a lower discount rate which makes larger the amount you need to insurance.
Is this reasoning correct? First thought I have was is that if a I have a 100% secured job I do not need to insurance it, but what you really protecting is the risk of mortality.
If you have a very secure job, then your future earnings are very likely. If you die, your life insurance should have a high value to cover the high likely earnings that are now gone.
If you have an insecure job, your future earnings are very unlikely. If you die, your life insurance will have to cover only a low value of likely earnings.
Its easy for me to remember it by which Human Capital has the higher discount rate, thereby having the lower PV of Human Capital. Bond Like HC would have a lower Discount Rate, higher PV. Stock like would have a higher discount rate, lower PV of HC.
The way I remember is, the more secured your job is and higher the earnings, higher will be the quality of your life. The loss of earnings will require higher maintenance cost to continue to live with the same living standards or with a minimal impact. Hence, you require Life Insurance that has a higher value (payout to the beneficiary in the occurence of the event) for a higher earning job or more secured job.
Think about it this way. Remember life insurance is not for you. You are dead. Say it’s for your spouse and kids with a certain standard of living to maintain once you’re gone. [They refuse to go from a 6 bedroom house to an apartment bc you got ran over by a train. This is why you pay your insurance premiums.]
It’s insurance to compensate for the lost of all the money you would have earned (your human capital) if you didn’t die. So the more stable your job (more bond like in terms of cash flow fr paychecks) and the more you make, the more insurance you need to match your human value to the family.
I think pretty much as Godism17 :
LIFE INSURANCE covers the loss of your HC
the larger HC, the higher demand for Life insurance;
HC = actualisation of future expected cash inflows from your Income. If your Income is NOT stable (e.g. stockbroker) you need to apply a larger discount rate to properly value HC.