If your vehicle is involved in an accident, the physical damage is easily quantifiable. The insurance provider will compensate you for the damages.
Determining the value of physical damage is easy. However, how does one quantify your value if something unfortunate happens to you?
This may be done using the concept of Human Life Value (HLV). It is estimated as the present value of all the future earnings you are expected to make for your loved ones. In other words, it is the estimated income you will earn until you retire. HLV calculates the economic loss your family will suffer in case of an untoward incident. Having understood this concept, you may want to know the purpose of calculating what human life value is. It is beneficial in determining the life insurance coverage that would be needed to ensure the financial security of your family in your absence. The calculation considers your income, expenditures, liabilities, and savings.
Your family loses its income in the event of an unforeseen circumstance if you are the sole earner. They may face financial difficulties due to insufficient savings and may be unable to meet their regular expenditures. Such a situation may be avoided by procuring adequate life coverage.
In case of an unfortunate incident, the insurance company will pay the policy benefits to your survivors. This will ensure their financial stability and help them meet their regular expenses, pay for children’s education, and repay any outstanding debt liabilities.
How much cover should you avail?
The next question may possibly be what is human life value in insurance terms? This may be determined by using a HLV calculator. You need to consider several factors in order to calculate the adequate insurance coverage needed. These include:
1. Current age and proposed retirement age
2. Present total savings
3. All monthly expenses such as home, medical, lifestyle, food, education, and travel
4. Future expenditure like buying a home, higher education for your children, and their wedding
5. Outstanding debt liabilities such as home loan, car loan, or personal loan
6. Current insurance cover purchased
Calculating the life value may be complex if done manually. It is recommended you take the help of a human life value calculator.
An easy and affordable way to ensure the financial security of your family in your absence is buying a term plan. It is a pure life cover policy that pays the benefits to your beneficiaries when you are not around to take care of them. A term insurance plan does not offer any survival or maturity benefits.
Some of the benefits of availing term plans are as follows:
- Higher sum assured
- Affordable premium
- Greater coverage through additional riders
- Discount on premium if you do not consume tobacco and follow a healthy lifestyle
HLV is not constant and will change depending on the various stages during your lifetime. It is also affected by any modifications to your annual income and family conditions.
When you are young and single, the value will be different from when you are in your 30s and supporting your family. Therefore, it is important that you take help of the HLV calculator periodically to determine your insurance requirements at different stages in your life.
