| “Human
Life Value” – A Tool To Know Your Worth
The first thought that comes in mind to provide
financial security for our family is life Insurance. Life insurance
is the most efficient way of furnishing security & it offers
people methods of achieving economic security. But, how much would
your family need in your absence is a question, which you find difficult
to answer. While there are several ways to arrive at the right amount
of cover you need to provide the financial security to your family,
the most efficient way is through calculating “Human Life
Value”. 
Human Life Value (HLV) is a methodology to determine the appropriate
amount of sum assured you need to have at present in case of future
loss of income. In simple words, it is that amount, which can ensure
that the standard of living of the family is not affected even if
the earning member is not there. HLV calculation is a tool that
is used very effectively for financial planning around the world.
It is a systematic way of understanding the gaps in the financial
planning.
How do you determine your Human Life Value?
Human Life Value is determined by 3 main factors:
1. Your Age
2. Current and future expenses
3. Current and future income
How to Calculate:
Let see an example, where HLV is calculated for Mr Vivek Rao based
on the present needs and income. Mr. Vivek Rao aged 41 years has
an annual income of Rs.10 lacs, spends Rs.3 lacs on his personal
expenses (including Taxes). He has Fixed Deposits of Rs.6 lac. He
also has a loan of Rs.10 lacs and plans to spend Rs.10 lacs each
on his son’s education and his daughter’s marriage.
His human life value will be as follows.
| Annual Gross Income |
10,00,000 |
| Less Expense on Self including taxes |
300,000 |
| Contribution to Family Standard of Living |
700,000 |
| Multiplying factor |
15 |
| Gross Human Life Value |
1,05,00,000 |
| Less Liquid Assets |
600,000 |
| Add Liabilities |
1,000,000 |
| Add Amount to fulfill family needs like
daughter’s marriage & son’s education |
2,000,000 |
| Human Life Value |
1,29,00,000 |
Expenditure on self-Maintenance (1/3 of gross income for people.
This also includes varying tax liabilities) Liquid assets These
would be available to the family in the event of the death of the
breadwinner. It does not include the value of other assets like
property or jewellery since it is assumed that the family would
continue using these assets.
Age |
Multiplying Factor |
| Upto 35 years |
25 times |
| 36 to 40 Years |
20 times |
| 41 to 45 years |
15 times |
| 46 to 50 years |
12 Times |
| 51 to 60 years |
10 Times |
| 61 to 65 years |
5 Times |
The Human Life Value is just indicative and a starting point in
reference to your current ability to set aside money for you and
your family’s future financial security. There are ready calculators
available for calculating the HLV based on current and future income
and expenses as well. You can also contact your financial advisor
for arriving at the optimum amount of cover through HLV.
Once you are convinced with the amount, you can choose various
life insurance plans for covering yourself. Policies like term assurance
plans, traditional plans and Unit linked plans are available with
all the insurance companies providing. While term assurance &
whole life insurance plans are purest form of insurance with no
returns, Unit Linked Plans can give you good returns in the long
term
Source : HDFC News letter
|
7:40:15 AM 
