Economic Loss Evaluation and
Life Insurance Need
The economic loss analysis included here includes
only limited elements of
the Ph.D. LIFE system and, therefore, makes a number of
simplifying assumptions.
Consequently, the result does not necessarily represent the
economic loss to your family
from your death but rather the loss to a representative family
with a few of the
characteristics of your own. As such, the analysis does not
produce an amount that could
be supported at trial and is not something to which the
economists at Litigation Analytics
would testify. Nevertheless, the results from this analysis do
prove that the true
economic loss to a family from death can be much greater than is
commonly believed. It
also demonstrates the fundamental role of economic loss
assessment in determining your
life insurance needs.
***** For this illustration, only broad occupational
categories are used and simplistic
assumptions are made regarding such factors as income taxes; your
own consumption;
investment income; household services; pensions; and many other
factors critical to
evaluating the economic loss to your family in the event of your
death. In addition, we
disregard spouse's age, and we disregard dependents.
***** The following describes the analysis performed by Ph.D.
LIFE™ and notes
changes to this analysis with the words "for this
application".
This report was prepared using Ph.D. LIFE™, from
Litigation Analytics, Inc. (LAI).
Ph.D. LIFE™ is a member of LAI's Ph.D. family of expert
software systems and is based
on PERSONAL Ph.D.™ and Ph.D. DAMAGES™, the expert
systems designed to perform
economic loss evaluations for personal injury and wrongful
death cases.
The economists at Litigation Analytics have been providing
expert testimony in wrongful
death cases for over 15 years. Moreover, since 1981, they have
used the results of the
very software used for this evaluation of your insurance needs to
prepare their trial
testimony. In fact, if you were to die a wrongful death today and
your spouse became a
plaintiff in a court of law, an economist from Litigation
Analytics would testify to the
results presented in this report, if LAI were retained in the
case of either plaintiff or
defendant. This assumes, of course, that the information entered
into the analysis is
correct and that the most current update of Ph.D. LIFE is
used.
Economic Loss Evaluation and Life Insurance Need
INTRODUCTION
Each year you contribute to the financial well being of
your family. In the event
of your death, your family would lose this contribution. To
conduct an assessment of the
economic loss to your family in that event, this net contribution
must first be estimated.
Then, an amount of money must be determined such that, if it were
provided to your family
upon your death, they could replace the contribution that you
would have made in each
succeeding year.
To begin the loss analysis presented here, three primary
components of your financial
contribution to the family in each future year were estimated.
These three components
were:
1. Earnings for individuals in your occupation by age.
2. Fringe benefits.
3. Household services.
For each year, these three components were added together to
yield an estimate of the
"gross loss" to the family for that year if you are not
living.
Of course, a portion of your earnings is paid as taxes. The
income taxes payable on
your projected earnings were estimated in each year and
subtracted to yield your annual
after-tax income. Next, again on a year to year basis, the value
of what you will consume
was estimated, as not all of your after-tax earnings will be
available to the other
members of your family. This consumption was estimated for each
year based on the total
projected annual family income after tax. These annual estimates
of taxes and consumption
were subtracted from the gross loss estimate for each year to
yield your net contribution
to your family, or the "net loss" for each year if you
are not living.
In the event of death, it is this net contribution which must
be replaced to protect
your family against loss. That is, your family must be
compensated by the amount of their
net loss.
Should you die a wrongful death and should your family have
access to the courts for
compensation, it is this net loss which would form the basis for
economic testimony in the
case. Should you not die a wrongful death, the only source of
compensation to your family
becomes life insurance. However, their loss is the same.
LIFE INSURANCE AS PROTECTION AGAINST ECONOMIC LOSS
The amount of life insurance needed to protect your family
against economic loss is
simply the amount of money that would need to be invested upon
your death, so that they
could precisely replace their net economic loss in each year that
follows. As described
above, this net loss was projected using the same techniques as
would be used in a court
of law. All projections were performed using state of the art
techniques from the
professional economics literature, proven in the courtroom, using
data from U.S.
government agencies and research universities.
