It is easy to determine the value of material objects like a vehicle, house, etc. General insurance companies ascertain the value of these products to provide insurance cover. It is a simple process. But how do you cover the risk to human life? The value of human life cannot be quantified in numbers. However, one has to attach a value to human life for effective insurance cover. Insurance companies need human life value to determine the price of the cover while policyholders require human life value to get an idea of the insurance cover they require. Human life value is calculated through a variety of methods by taking into account the income, savings and liabilities of the individual. It is the value that helps in ascertaining the loss of income and the increase in liabilities in the event of the demise of the earning member.
A human life value calculator is a free online tool that helps in determining the amount needed to effectively make up for the loss of income in the event of the death of an earning member. HLV calculator assigns a value to human life which makes it easier to purchase an insurance cover.
The human life value calculator requires certain data from the user to generate his/her life value, which includes the current age of the user, retirement age and the current income. The current age and the retirement age help in ascertaining the number of working years left for you(policyholder).
The current income along with the current age and retirement age help in determining your future cash flows.
Besides the age and income, the human life value calculator also requires the current expenses, assets and liabilities. Some of the HLV calculators may also need the details of any existing insurance cover. The aim of the HLV calculator is to provide the applicant with an idea of the cover needed to secure the financial future of his/her family.
The HLV calculator is a simple tool with an easy-to-use interface. A typical HLV calculator has certain columns where the correct data has to be provided.
The human life value calculator works in several stages. However, all the processes take place at the backend.
The human life value calculator estimates the current value of your income by using the current income and current expenses. The expense portions like EMI, insurance premium and personal expense are deducted from the current income.
To determine the size of the required corpus the present value of the series of income to be replaced has to be calculated. The present value is adjusted for inflation.
The corpus is adjusted for the existing liabilities The final required corpus is adjusted for the existing investments and insurance cover.
The factors taken into account while calculating human life value are:
The human life value calculator provides a number of benefits:
Human life is priceless and its value cannot be exactly estimated. The human life value calculator solves this peculiar problem and puts a number to human life value.
Human life value calculator helps in deciding the amount of insurance cover required to ensure a financially secure future for your family.
With a fair idea of the cover needed to secure your family’s future, you can confidently buy the right insurance policy. Many people purchase a higher insurance cover than they need and end up paying more in premiums.
There are two primary methods of calculating HLV
The income replacement method works on the premise that whatever income is used to support the family has to be replaced by life insurance. The concept was developed by Dr S.S. Huebner.
It works on the premise that the amount required for the needs and goals of the family in the event of the demise of the earning member has to be covered by life insurance.
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Human Life Value (HLV) is a number that depicts the present value of one’s future income expenses which may include the investments and liabilities. The HLV number helps understand how much money would be required to secure the lives of your dependents through a term plan, in case of your untimely death.
There are 7 elements that are considered to assess your HLV which include:
4. Retirement age
5. Employment benefits
6. Annual income
7. Financial information on spouse and children
Human life value puts a monetary value to human value. It is the value of benefits the family members may derive from the future efforts of a family member. It is an important metric, especially for families with a single earning member. The human life value helps in determining the size of life insurance required to secure the family’s future.
The income includes salary and other sources of income like income from house property, capital gains and income from business or profession.
Yes, Human Life Value changes over the years depending on your changing needs, liabilities, dependents, and more.