- Human life value is the amount that can maintain your family’s way of life even when you’re not around
- A reasonably accurate human life value amount has to be calculated taking all financial liabilities and future expenses in mind
Life has its fair share of uncertainties and a life insurance policy is a source of relief in such a situation. A life insurance policy covers the owner of the policy, so that, in case of an unfortunate event, the dependents are protected from financial liabilities, and their standard of living is maintained, and expenses met.
The most crucial aspect of a life insurance policy is the coverage amount or the sum assured that your nominee will receive in your absence. Life insurance companies use the ‘human life value’ concept to establish the economic value of human life.
Human Life Value (HLV), as the name suggests, is the approximate financial value of the person seeking insurance. It consists of calculating the income you would’ve earned till your retirement age, plus the addition of any outstanding liabilities and negation of any existing insurance coverage and investments.
Calculating the correct coverage requires contemplation and consideration of the below mentioned points:
● Monthly Expenses
Every household has a fixed set of expenses that they incur each month. It is obvious that these expenditures will need to be considered while calculating the human life value. These can be anything from medical expenses, to children’s education fees, EMIs, to grocery bills and leisure activities.
● Outstanding Loan Amount
Home loans, educational loans, or personal loans are liabilities that add to the sum assured required. Such outstanding amounts need to be taken into consideration while calculating the human life value. This is because, in case of an untoward incident where you are no longer there, your dependents will be liable to pay the balance loan amount.
● Anticipating Future Expenses
The sole breadwinner of the family has a lot of future expenses to take care of. S/he must plan for the future needs of his/her dependents. These can be things such as expenses pertaining to children’s higher education, wedding, etc. For the sum assured to be sufficient, all these requirements need to be included in the calculations.
● Life insurance cover and Savings
Factors such as your existing life insurance coverage and savings also influence your calculations and help you come to the optimum coverage amount without stretching your present finances.
Human Life Value is calculated by adding your expenses, your outstanding loans, future expenses and deducting from it your existing life insurance cover and your savings & investments, to arrive at a monetary figure that will enable your dependents to sustain their existing lifestyles, even in your absence.
For example, for Rahul, a 35-year old businessman, the sum of current monthly expenses, outstanding loans and future expenses is ₹2 crore. However, since he has savings and existing life insurance policy worth ₹1 crore, he should consider buying an additional life insurance policy with a sum assured of ₹1 crore. This is his Human Life Value.
