Life Insurance, 15th Edition


Kenneth Black, Jr., Harold D. Skipper, Kenneth Black, III


ISBN: 978-0-9858765-1-7



827 pages

March 2015


Table of Contents

The Authors

Past Authors

This 15th edition of Life Insurance is published in recognition of the 100th anniversary of this book's first edition. That edition was published in 1915 and authored by Dr. Solomon S. Huebner, founder of the Wharton School's insurance program and of the Chartered Life Underwriter certification program. It was pioneering for setting out both insurance principles and practices in a single, expansive treatise aimed explicitly at students of the business, whether they were students in the traditional collegiate sense or those undertaking professional development studies. This edition continues that legacy.


While the 14th edition represented a sweeping revision and was published not long ago, several factors compelled us to bring forward this edition. These included a desire to update several vitally important sections, such as the tax treatment of life insurance and the implementation of the Health Care and Affordability Act of 2010. We also discovered several portions of the 14th edition that needed clarification and others that benefited from a deeper treatment. We also corrected several errors identified by helpful readers.


The book's simple title, Life Insurance, should be understood in its broadest context to encompass insurance that (1) pays money on the death of an insured (i.e., mortality risks), (2) promises to pay while an  insured is alive (i.e., longevity risks), and (3) promises payment or


services to insureds in the event of incapacity, disability, or loss of health (i.e., morbidity risks). The book continues to emphasize the economic and finance fundamentals that underpin life insurance theory and practice. The book is made more relevant to students and practitioners through its inclusion of the latest innovations in insurance products, their pricing, and their applications to individual, family, and business problem solving. Toward this end, the treatment of enterprise risk management has been deepened, in accordance with the increased understanding and emphasis occurring over the past two decades.


The material is presented from the viewpoints of the buyer, the advisor, the insurer, and the regulator. Forthright appraisals are offered to the various life insurer products, with suggestions for how they and the companies and producers that sell them can be evaluated. Further, while the historical emphasis on U.S. practice is retained, international practices and terminology are presented throughout. Finally, entire chapters are devoted to explanations of how life insurance products (1) fit within a personal financial planning context, (2) are taxed, (3) are relevant in estate planning, (4) assist in retirement planning, and (5) find beneficial application in many business situations. Each of these chapters reflects the latest applications, law, and tax treatment, while essential theoretical and practical background information provides a stable and lasting learning platform.




Chapter 1: The Economics of Life Insurance

      A Brief History of Life Insurance

     The Language of Insurance

     The Importance of Life Insurance

     Life Insurance Markets

     Economic Concepts of Life Insurance Consumption


Part I: Life Insurance Products


Chapter 2: An Overview of Life Insurance

     Means of Dealing with the Financial Consequences of Death

     Evaluation of Life Insurance as a Financial Instrument

     Policies Sold by Life Insurance Companies

     Requisites for Private Insurance

     Introduction to Life Insurance Pricing


Chapter 3: Personal Life Insurance Products: I

     Term Life Insurance

     Universal Life Insurance

     Variations of Universal Life Insurance


Chapter 4: Personal Life Insurance Products: II

     Whole Life Insurance

     Life Insurance on Multiple Lives

     Specialized Life Insurance for Insureds with High Net Worth

     Endowment Life Insurance

     Summary of Attributes of Common Personal Life Insurance Policies

     Appendix A4-1: Attributes of Term and Cash Value Life Insurance Policies


Chapter 5: Life Insurance Policy Provisions and Riders

     Overview: Policy Content and Format

     Life Insurance Policy Provisions

     Common Life Insurance Policy Riders


Chapter 6: Retirement Products

     The Nature of the Retirement Risk

     Nature of Annuities

     The Structure of Fixed Annuities

     The Structure of Variable Annuities

     Guaranteed Minimum Withdrawals

     Substandard Mortality Annuities

     Retirement Plans


Chapter 7: Health Insurance Products I: Medical Expense Insurance

     The Health Care Environment

     The Economics of Health Care

      Overview of the Patient Protection and Affordable  Care Act

      Comprehensive Medical Insurance Coverage

      Group Health Insurance

      Individual Health Insurance

      Major Government-related Health Programs in the United States


Chapter 8: Health Insurance Products II: Disability Income and Long Term Care

     Disability Income Insurance

     Long term Care Insurance


Part II: Life Insurance Company Operations


Chapter 9: Life Insurer Management

     Life Insurance Providers

     Corporate Management

     A Functional Overview of Life Insurer Management

     Financial and Actuarial Intermediation

     A Short History of the Life Insurance Industry and Risk

     Life Insurer Assets and Liabilities

     How Life Insurers Make Money

     Life Insurer Enterprise Risk Management


Chapter 10: Life Insurance Marketing

     The Marketing Program

     Life Insurance Product Development

     Distribution Channels

     Compensation in Marketing


     The International Dimensions of Distribution

     The Future of Life Insurance Marketing


Chapter 11: Life Insurance Underwriting


     The Need for Underwriting

     Guiding Principles in Underwriting

     Factors Affecting Insurability

     Sources of Information Concerning Life and Health Insurance Risks

     Methods of Risk Classi!cation

     Classifying Substandard Risks

     Special Underwriting Practices



Chapter 12: The Regulation and Taxation of Life Insurance Companies

     Overview of Regulation

     U.S. Federal Regulation of Life Insurers

     U.S. State Regulation of Life Insurers

     Issues in Group Supervision

     Taxation of U.S. Life and Health Insurers


Chapter 13: Life Insurer Financial Reporting and Supervision

     Financial Condition, Supervision, and Reporting

     Life Insurer Accounting Conventions

     Financial Reporting

     SAP versus GAAP Treatment of Accounting Items

     Financial Supervision 303

     The Future of Financial Supervision and Reporting


Chapter 14: Life Insurer Financial Management

     Capital and Risk Management

     Economic Capital

     Financial Risk Management

     Capital Allocation

     Risk-Adjusted Measurement of Firm-Level Financial Performance



Chapter 15: Life Insurance Actuarial Fundamentals

     Measurement of Risk in Life Insurance

     Overview of Insurance Pricing

     Net Premiums


Chapter 16: Life Insurance Actuarial Applications

     Reserve Derivation

     Cash Value Derivation

     Derivation of Gross Premium Rate Structures

     Surplus and Its Distribution


Part III: Life Insurance Due Care


Chapter 17: Life Insurance Advisor and Company Evaluation

     The Life Insurance Purchase Decision

     Evaluating Life Insurance Advisors

     Evaluating Life Insurance Companies’ Financial Strength

     Implications to Policyholders of Insurer Financial Di#culty


Chapter 18: Life Insurance Policy Evaluation I: Legal Aspects

     Life Insurance and the Law of Contracts

     The Insurance Policy as a Contract

     Life Insurance and the Law of Agency

     Market Conduct, Product Suitability, and Consumer Litigation

     Creditor Rights in Life Insurance


Chapter 19: Life Insurance Policy Evaluation II: Performance Comparisons

     Life Insurance Policy Illustrations

     Assessing the Sustainability of Illustrated Policy Values

     Using Illustrated Policy Values for Policy Performance Comparisons

     Policy Reviews

     Cost and Bene!t Disclosure

     Life Insurance Replacement and its Regulation


Part IV: Life Insurance In Personal and Business Planning


Chapter 20: Personal Financial Planning

     Wealth and the Life Cycle

     Personal Financial Planning in a Risk Management Context

     Personal Financial Planning Advice

     The Personal Financial Planning Process

     Determining the Total Personal Insurance Need


Chapter 21: Life and Health Insurance Product Taxation


     Life and Health Insurance Product Taxation Fundamentals

     Federal Income Tax Law Affecting Policy Design and Operation

     Life Insurance Policyowner Taxation

     Annuity Policyowner Taxation

     Health Insurance Policyowner Taxation


Chapter 22: Life Insurance in Estate Planning

     The Estate Planning Process

     United States Federal Transfer Tax Laws a$ecting Estate Planning

     How Property Passes at Death

     Life Insurance Analysis for Estate Planning

     Life Insurance and the Generation-Skipping Transfer Tax


Chapter 23: Retirement Planning

    The Uncertain Environment for Retirement Planning

     Psychological Dimensions of Retirement Planning

     The Retirement Planning Process

     Retirement Planning Risk Management

     Personal Savings through Nonquali!ed Annuities: An Extended Analysis

     Personal Savings through Life Insurance: An Extended Analysis


Chapter 24: Life Insurance in Business Planning

     Forms of Business Organizations

     Tax Considerations in Business Applications of Life Insurance

     Business Applications of Life Insurance






Harold D. Skipper is Professor Emeritus of Risk Management and Insurance at Georgia State University. While at GSU, he chaired its Department of Risk Management and Insurance and held the C.V. Starr Chair of International Insurance until he retired in 2005. He is past President of ARIA, past Vice President of the IIS, and founder of the Asia-Pacific Risk and Insurance Association (APRIA). His bachelors degree is from Georgia State University and his masters and Ph.D. degrees are from the University of Pennsylvania where he studied as a Huebner Fellow.

He is author or coauthor of four books and dozens of articles and serves on the advisor boards of several international educational institutions. His major non-academic experience includes work with the United Nations Conference on Trade and Development in Geneva, the Paris-based Organization for Economic Cooperation and Development, the World Bank, the Geneva Association, the World Economic Forum, the U.S. Departments of Commerce and Justice, state and international insurance supervisors, the National Association of Insurance Commissioners, as well as several major corporations and law firms.  Among his professional recognitions are ARIA’s Kulp-Wright Book Award (2009) for “Outstanding Original Contribution to the Literature of Risk and Insurance,” the IIS’s John S. Bickley Founder’s Award (2009); establishment (2005) of the Harold D. Skipper Award for Outstanding Risk and Insurance Research, presented annually at the APRIA conference; and membership (1995) in Phi Beta Delta, Honor Society for International Scholars.

Harold D. Skipper can be reached at


Kenneth Black III is a graduate of the University of North Carolina and received his Juris Doctorate from the University of Georgia School of Law. He has worked across a wide spectrum of insurance, life insurance, and health insurance related activities serving both consumers and providers of financial services. These have included reinsurance brokerage at Lloyd’s of London, both practice and systems design in personal financial and estate planning, investment counseling, third party administration of health care plans, and strategic planning for financial services providers. He was a participant in a multi-disciplinary independent marketing group that designed, arranged reinsurance, and marketed the first substandard annuity for smokers in the United States.

He has provided consulting services to major life insurers, national and international life insurance agency operations, and law firms. As an adjunct instructor for many years, he taught courses in business law, risk and insurance principles, life insurance, financial planning, and financial institutions management in the Department of Risk Management and Insurance at Georgia State University. He has also served as guest lecturer in the department’s Munich Re International VisitingFellows Program. In 2013 he lectured at the Munich  Risk and Insurance Center at Ludwig Maximillians University. He is a member of the American Risk and Insurance Association (ARIA) and the Asia-Pacific Risk and Insurance Association (APRIA). From 1993 to 2007, he organized and served as the founding President of a private life insurer affiliate of  the former Fortis banking and insurance conglomerate.

Kenneth Black, III can be reached at



Solomon S. Huebner, the sole author of this text until 1958, is often called the “father of insurance education” in the United States. He taught the first courses ever given in insurance and established (1913) and chaired the nation’s first academic department of insurance at the Wharton School, University of Pennsylvania. Although his Wharton doctoral thesis concerned foreign-trade aspects of marine insurance, he invited life insurance managers to lecture to his early Wharton students. He quickly realized the urgent need for uniformity, fairness, and honesty in the life insurance industry.

He authored several path breaking insurance textbooks, including the first edition of this volume, published in 1915. Since that time, succeeding editions have been in continuous use both at the university level and in professional programs.  He invited Dr. Kenneth Black Jr. to join him as coauthor of this text in 1958.  Dr. Huebner was active in both academic and professional circles, serving as President of the American Risk and Insurance Association (ARIA). He was made a Laureate of The Insurance Hall of Fame, International Insurance Society, Inc. in 1957, its inaugural year. Dr. Huebner retired from the University of Pennsylvania in 1953 and died in 1964.




Kenneth Black, Jr. was the founder of the Department of Risk Management and Insurance Department (1959), Regent’s Professor Emeritus, and Dean Emeritus of the Robinson College of Business at Georgia State University. He held the C.V. Starr Chair of International Insurance from its founding until 1993 and, in 1989, the Kenneth Black Jr. Chair of Insurance was founded in his honor. He held bachelors and masters degrees from the University of North Carolina, with a doctorate degree from the University of Pennsylvania where he studied as a Huebner Fellow.

Dr. Black was author or coauthor of 15 books and numerous articles and essays and served as the editor of the Journal of Financial Service Professionals for 42 years. He was also active in industry and government, serving as Vice Chairman of the President’s Commission on Railroad Retirement. He served as President of both ARIA and of the International Insurance Society (IIS). Among the many honors and awards Dr. Black received are: the John Newton Russell Memorial Award (1999) presented by the National Association of Life Underwriters; Laureate, The Insurance Hall of Fame, International Insurance Society, Inc. (1993); and the Solomon S. Huebner Gold Medal from the American College (1985); Dr. Black retired from the faculty at Georgia State University in 1992 and died in 2005.



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