It is quite common that we realize the importance of a precious possession only after we have lost it. We do not value it and take it for granted once we have it with us. The same holds true for our human lives. Like many people, you might not believe that there is a certain value associated with the lives of every individual, especially breadwinners in different families. For example, the value of a statistical life is $10 million.
If you want to know more about estimating the financial consequences of loss of income because of death in a family, you need a human life value calculator.
Before we cover different aspects of a human life value calculator, let’s first understand what human life value means.
What is Human Life Value (HLV)?
Human Life Value, also known as HLV, indicates the insurance requirement based on your current income and its future worth. It is also defined as the present value of future earnings, savings, liabilities, and investments.
Based on your HLV, you can better decide the sum assured that your dependents will need to fund their expenses in case of your untimely demise. In other words, you can select a life insurance cover that is equivalent to your human life value.
Importance of Human Life Value
A common question that comes to our minds at the time of buying life insurance is about the selection of adequate life coverage. In general, we fail to understand the worth of our lives, which makes us feel confused about how much life coverage to be selected. HLV calculation is important as it can give you an idea of your financial obligations.
Using an HLV calculator can help address:
- If your current term life insurance coverage is adequate taking into account the inflation rate
- How to realign sum assured selection or life insurance purchase based on the addition of a new member into the family, say a newly born baby.
- You will be in a better position to analyze the overall life coverage you need.
What is a Human Life Value Calculator?
A human life value calculator is an online tool that can help you gauge the impact of your death on the financial situation faced by your loved ones. Based on the HLV, it will subsequently help you decide the insurance benefit you can select to assume a replacement of income for your family to survive after you.
How is Human Life Value (HLV) Calculated?
HLV is calculated on the basis of various factors, such as:
- Your current age
- Occupation
- Age at which you want to retire
- Annual income
- Employment benefits
- Savings
- Existing loans
- Existing life cover
- Details about the dependents
Basis of HLV Calculation
-
Income replacement
It estimates the regular income that your family members will need in the form of insurance payout to support their expenses.
-
Need-based
It takes into account various needs specific to different individuals that are to be fulfilled with the help of insurance coverage. These include mortgages, loans, etc.
How Does a Human Life Value Calculator Work?
An HLV calculator is based on the factors mentioned above. Irrespective of the calculator you choose online, most of them will ask you to enter specific information into different fields like:
- What is your current age?
- What are your monthly expenses?
- What are the current savings and investments?
- How many financial liabilities do you handle (personal loan, home loan, etc.)?
- What is the sum assured of the existing life insurance policy if any?
- What are your financial goals?
Based on the information you enter, the human life value calculator will give you an estimate of the total sum assured you should have. Keep in mind that the results shown by an HLV calculator are just an indicator of adequate life insurance coverage. It is up to you to decide if you want to select a higher or lower life cover as compared to the calculations.
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