Human Life Value



 Greetings,

 

We hope you found our previous post on the Pradhan Mantri Vaya Vandana Yojana both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out.

While the Mesopotamian shekel, the oldest known form of currency, was first used to trade over 5,000 years ago, it wasn’t till the 1920s that Dr. Solomon S Huebner managed to calculate what a person’s life is worth. Yes, the process of buying and selling human beings probably predates our earliest historical records, but what we’re talking about here is human life value in the context of insurance coverage. Human Life Value or HLV is an economic theory to put a monetary value on a human’s life in order to select appropriate life coverage.

This is quite simply the process of calculating the total economic loss caused to a person’s next of kin, which comes in addition to the obvious mental and emotional trauma that comes with a death in the family. While you can’t put a price tag on the latter and only time can heal such wounds, it’s the economic loss that we are interested in putting a price tag on. It may sound disconcerting at first to have to assign a monetary value to a person’s life, but the reality is that without such preparedness, grief would undoubtedly be accompanied by financial troubles as well.

This is probably why Dr. Solomon S Huebner talked extensively about developing a sense of responsibility among the general public and in particular, doing away with the myth that a person’s responsibility to his family is limited to his time in this world. Additionally, Dr. Huebner looked at any such shirking of responsibilities as a “crime of not insuring,” and even encouraged a “finger of scorn” to be pointed at anyone who was not interested in securing the future for their dependents.

Humans are social beings who depend on each other for strength and support. When you talk about Human Life Value, it’s basically the current, future, and potential financial support that you create for those who depend on you. This is done by taking into account a number of factors like your present age, what age you plan to retire at, annual income, employment benefits, and more. When you calculate all the variables and finally boil it down to one number, what you get is the final amount required to ensure that your death won’t affect the people you love financially. 


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Now ideally, you don’t want your dependents to have to depend on your life insurance coverage, but rather on the interest which is generated from the deposit of the insured amount. So while a simple way to calculate Human Life Value is obviously to calculate your monthly income from today till the time you retire, we’re going to look at four different levels of life insurance coverage.

 

1.  Minimum level: The minimum level is where you cover yourself for up to 100 times of your monthly net income. For example, a man with a monthly income of Rs. 100,000 insures himself for 1 crore, which is 100 times his monthly income. This means his dependent can put this in a savings account at a 6% interest rate to earn Rs. 50,000 a month, which is 50% of his monthly income.

2.  Adjustable level: In the Adjustable level you cover yourself for 150 times your monthly net income so the same 6% return on deposit would generate 75% of your monthly income.

3.  Comfort level: The comfort level is where you get covered for 200 times of your net monthly income so, in case of any eventuality, your spouse will get the same amount as you were contributing to the family.

4.  Considering future inflation: It is always wise to take into account future inflation and in such a situation it is recommended to cover yourself for 300 times of your monthly income so that your family receives 150% of your monthly income in the event of an unfortunate circumstance.

 The interest rate, inflation and coverage differ from person to person & country to country. To find out the exact values kindly contact us.

 In conclusion, death is hard to talk about, a lot harder to deal with, and most importantly, filled with uncertainty as no one knows when they’re going to die. That being said, the knowledge that you do know exactly how much your life is worth to your family and that you can prepare to have those needs met accordingly, is both comforting and reassuring.

 If you enjoyed reading this post, please leave a comment or a suggestion on what financial topic you would like to read about next.


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