Human life is very valuable, even economically. If seen through the lens of insurance, life insurance is actually your life’s value. The concept of Human Life Value (HLV), has been adopted and used worldwide as a means to ascertain the economic value of human life. HLV is a widely spread concept in the area of insurance policies. It reflects the monetary amount that balances out a family’s way of living in case of an unfortunate event, where the bread earner dies or cannot work anymore. Valuing the Human Life In the event of an untimely death of a family member, who earns for the family, there needs to be some sort of compensation in lieu of the loss of earnings which can’t be accumulated. This is the argument behind the Human Life Value concept. It talks about the functioning of the family, with as less financial hardship as possible. This approach or method is also called as ‘Income Replacement Approach,’ because it fixes the economic life of a person based on his/her dependents. Thus, without discussion one can conclude that this approach is attributable only to income generating families. Only families with income generating members can be eligible to come under the purview of this approach. This contrasts the other approach – the needs approach, which, as the name suggests, concentrates on the needs of the family members. HLV Estimation In order to establish and fix the amount of life insurance coverage needed by you, must calculate your Human Life Value. Your economic life value is calculated for the betterment of your loved ones with respect to the HLV.
Factors You should look into and mull over certain factors while calculating your HLV – Age of the insured person Gender Occupation Target retirement age Annual salary Employment benefits Working of the HLV Concept The following steps show how the Human Life Value approach works: Estimate your annual average earning, taking future hikes into consideration. Consider your current age and the age you will retire and check how many years are left for your retirement. Take into consideration the yearly hike in salary, inflation rate and rate of return of interest that will be paid to the insurance policy holder. How to Calculate HLV Value? Multiply your yearly net income with the number of years left for your retirement. Consider the yearly salary hike and inflation rate. This is the amount you would accumulate if you keep working till your retirement. But if something happens to you, then this is the amount, you need to make available to your family so that they don’t suffer from any financial crisis after you. Here, you will also need to consider the return rate of interest that you would get by investing on a life insurance policy. The good news – you don’t have to do this alone! You can take help of professional financial planners , and discuss what is right amount you need to invest in life insurance or other plans with respect to the HLV concept.