Planning To Buy Life Insurance? Calculate Human Life Value To Get The Right Amount Of Cover Needed

Life insurance is an important financial safety net for families who only have a single earning member. Moreover, if you are buying life insurance so that your family remains protected in the unfortunate event of your demise, you should also be very careful when choosing the coverage amount. If you end up choosing a lower coverage amount, it could very well mean that your family might not get the adequate financial support that they need. One of the best ways to determine how much coverage you should aim for is by understanding the concept of ‘Human Life Value’ in insurance.

‘Human Life Value’ is a metric used by insurance companies to ensure that you (as the insured) are picking the right sum assured in your life insurance plan. In simple terms, ‘Human Life Value’ is a number which represents the present value of your future income after subtracting expenses such as liabilities, taxes, insurance payments, etc. The ‘Human Life Value (HLV)’ is a number that is helpful in determining how much money would be needed to protect your family/dependents financially in the unfortunate event of your demise. As a customer, understanding your human life value is essential in understanding how much life insurance coverage you need to buy.

HLV in insurance is also based on the amount of money that your family will need for their expenses, in the aftermath of your demise. The rate of inflation is also taken into account by insurance companies when calculating the HLV. Calculating HLV is especially essential for those families where a single member is the sole breadwinner, as choosing less than the appropriate amount can lead to financial difficulties later on in life.

There are plenty of online calculators available online that can help you determine your ‘Human Life Value’. Most of these calculators are free to use and offered by insurance companies on their websites. However, you can also get a rough estimate by doing the calculations manually by following these steps: 

Step 1: Quantify your current income. 

Step 2: From your income, subtract expenses, insurance premium payments and income tax. 

Step 3: Calculate the number of years remaining before your retirement. 

Step 4: Understand the current rate of inflation and the discounting factor rate. 

Step 5: Finally, by using all the above information, calculate your ‘Human Life Value’. 

Also Read: CLSA Expects Life Insurance Sector To Outperform In 2023