TITLE
"Investment in Human Capital, Diversification, and Life Insurance
Needs of a Small Businessperson," Journal
of Insurance Issues, Hamdi Bilici and P. James
Stickels. June 1988, Vol. XI, No. 2, pp. 55-67.
ABSTRACT
A small business or professional practice is a "partially-marketable"
investment. Its owner invests not only marketable assets such as cash, equipment, and
licenses in the business, but also his or her human capital. The combined assets, employed
effectively, generate investment returns which determine the value of the firm. Human
capital, however, is non-separable from the owner, so it is non-marketable. This makes the
business only partially-marketable. If the human capital contribution is removed, through
death or incapacity of the owner, the firm loses value. A life insurance policy, in he
amount of the value created by the owners human capital contribution to the firm, is
an important component of the owner s investment portfolio.
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