Insurance (any type of insurance) is the transfer of a specified risk to an insurance company in exchange for a premium.

 Life insurance is the transfer of the risk of losing your human capital to a life insurance company.

Human capital is the amount of potential income you would earn during your lifetime.

For example, a 40 year old male, who earns $75,000 per year and assuming a 2% salary increase per year, has a potential to earn $2,402,272 by the time he reaches age 65.

Unpaid human capital is the human contributions that, although unpaid, have a monetary value if they were to be replaced by labour.

For example:

• Staying at home taking care of children
• Home cleaning and meal preparation
• Taking care of an aging parent
• Taking care of a person with a disability

A life insurance company will guarantee a benefit, e.g. $500,000 to a named beneficiary upon the death of the insured person in exchange for a premium.

Life insurance benefits are always:

• Paid directly to the named beneficiary
• Private
• Paid 100% tax-free
• Bypass probate

John and Mary are a married couple.

John purchases a $1,000,000 life insurance policy with a premium of $51 per month.

If John passes away, the life insurance company will give Mary a $1,000,000 cheque.

The money will be paid tax-free to Mary and bypass John's estate and probate.