There is an economic value to human life despite its invaluable nature. Judges and citizens themselves can make this assessment. Human life value varies vastly in different countries. Following is an example of how human life is valued in the United States and Mongolia.
A month ago, the Minneapolis court ruled on the payment of a 27 million dollars settlement to the family of George Floyd, an African-American man who was murdered by a Caucasian police officer. Georg Floyd was supporting his 6-year-old daughter and wife. This settlement included the value of potential future income from employment, the benefits that his family could have enjoyed, including his daughter’s education expenses. Plus, a global gofundme campaign to help his wife and daughter has raised 2.3 million dollars.
In the meantime, the Mongolian Ministry of Defense compensated 34 million tugriks (12,000 USD) to the family of private B, who was beaten and killed by a drunken leader. The government also provided an additional 1 million tugriks for funeral allowances.
Internationally, there are laws determining the value of a person’s life based on the cause and circumstances of death and the financial needs of the family members left behind. The level of evaluation depends on many factors, such as the country’s economic capacity, productivity, and average wage. However, insurance provides an opportunity to negotiate and set the value relatively high in advance.
Solution for risks
Life is full of risks. Natural disasters, wars, accidents, and thousands of other incidents cause property loss, health, and lives. Humankind has always sought and tested ways to cover that damage, to help people return to their former life, and to prevent risk.
In 1772 BC, King Hammurabi of Babylon issued a law dictating that the builder would be executed if a poorly built house collapsed and casualty occurred. Moreover, if he were dead already, his son would be executed. After three millennia, a more sophisticated method – insurance – has emerged. In the 14th century, the first insurance contract was signed in the Italian city of Genoa, and life insurance for voyagers was introduced in England. At that time, pirates and hurricanes caused a great deal of damage, and it was impossible to predict who would get hurt or when it would happen. Therefore, people came up with joint funds for compensation. The 1666 Great Fire of London was a substantial factor in the development of insurance.
The first insurance provider in Mongolia was established in 1934 as the “National Authority for Protection Against Risks” (similar to the Gosstrakh in USSR) under the Ministerial council’s decree. In 1960, the name was changed to Mongol Daatgal (Insurance), and since 1990, private insurance companies have been established. Nowadays, there are 14 regular, one long-term, one double insurance company, and 56 intermediary companies, as well as 25 damage assessment entities on the market (according to the FRC report).
The companies provide three types of insurance services: personal (from health and life hazards such as traffic accidents or illnesses); property (from full or partial damages to property in events such as theft or fire); and responsibility (from potential harm to others’ assets and health in irresponsible incidents such as traffic accidents).
The 2004 Insurance Law classifies insurance services as long-term or regular and voluntary or compulsory. Life insurance falls under the long-term, voluntary category. Insurance companies operating in this category are licensed for each product, and their share capital needs to be higher than usual.
Life insurance
Life insurance only referred to insuring a person’s life until not long ago. Now, life insurance is a contract in which the insured chooses a valuation to reduce the risk of a setback in providing their family’s food, tuition fees, and debts and avoid compromising the financial needs of their loved ones for a certain period. The contract is then followed by paying a consistent premium to transfer the risk of their lives. This process is essentially a valuation of the insured individual’s life.
In developed countries, the standard method to calculate a person’s life value is to make a sum of 1) direct costs (treatment or funeral), 2) lost potential income, and 3) psychological damages.
In Mongolian court practice, damage to human life and health is calculated by direct costs. It is common for victims to be unable to receive any money other than funeral expenses (4-5 million tugriks). For example, the court assessed compensation to a 16-year-old boy who lost one eye in a car accident at 1.9 million tugriks. In 2013, a victim of a car accident claimed 8 million tugriks for their car, 4 million tugriks for one person who died, and 1 million tugriks to treat three injured people. A person’s life is assessed to be cheaper than a car! How can this be fair?
Compensation for psychological harm is set regardless of sex or age in some countries. It is around 250,000-1 million USD in the US states, and 100 million won for an adult, and 120 million won for a child in South Korea. Assessing the amount in respect to the Mongolian GDP per capita, the compensation amount is 47 million tugriks.
Around the world, life insurance is increasingly covering the duration of a person’s whole life instead of the period after death. For example, in Mongolia, the company National life provides insurance services for long-term income protection such as term life, whole life, endowment, pension, and health.
Life insurance protects a family from poverty when the provider is unable to continue working . Depending on the size and nature of the risk, this type of insurance sets different premiums for each insured person or component. While losses do not occur simultaneously, it slowly creates a reserve fund, making savings a long-term, high-quality investment that can be used to finance infrastructure projects and support the economy. That’s why in 1964, the United Nations identified insurance as a significant component in a healthy economy.
Unlike a commercial bank, an insurance fund is not a single investment but a long-term fund and an influential player in the stock market. Globally, 96 percent of life insurance investments have an average maturity of five years, and 72 percent have a maturity of more than ten years. It is estimatedthat a 1 percent increase in the ratio of life insurance premiums to GDP results in a GDP growth of 0.15 percent.
And because of its long-term characteristics, life insurance is a critical factor in stabilizing the financial system in times of crisis. Social welfare expenditures are inversely related to the life insurance premium income. The experience of OECD countries shows that an increase in life insurance premiums reduces the burden on public social insurance funds. In the United States, for example, between 2010 and 2017, insurers paid 1.1 trillion USD in life insurance, annuity, and disability insurance, accounting for 20 percent of social insurance spending and 4 percent of total federal expenditure. In the United States, 59 percent of the population has life insurance, while the figure is only 0.04 percent in Mongolia.
The value of a country’s life, therefore, depends on the magnitude of the economy, the competitiveness of the insurance industry, the percentage of the population covered by life insurance, and the degree of people’s trust in insurance companies. Every citizen needs to value their life depending on their circumstances with long-term insurance, including health, pension insurance, or savings, to protect themselves and their family from all kinds of risks that may arise. Insurance is the only and best way mankind has found to prevent any risk.
2021.05.10
Trans. by Munkh-Erdene.D