One has heard of the famous saying “Human life is beyond comprehension”. It is futile to attach any value to it. One needs to determine what his life is worth in monetary terms and sad as it might seem this is a necessary task. One’s insurance needs depend on his monetary worth and in order to avoid being underinsured or over insured his human life value needs to be found out. Life is full of uncertainty and no matter how much one earns there is no guarantee he would be there to provide for his family when they need his support the most. Insurance fills up this all important role. Remember “You don’t need to pray to God any more when there are storms in the sky, but you do need to be insured.
Human life value attempts to attach a value to one’s life so that one is able to establish for how much he needs to get himself insured. This saves one from insuring himself for too high an amount and needlessly paying the premiums. In simple words it is the present value of one’s future earnings.
Let us understand human life value through a simple example. Mr Raju is 35 years of age and plans to retire at 60 years of age. Mr Raju earns INR 30000 per month. His monthly expenses are INR 12000 on personal expenses. His taxes and insurance premiums are INR 100000 per annum. The rate of inflation is 5% which reduces the value of his earnings. Mr Ramesh after paying up his liabilities spends the rest of the money on his family. This amount is assumed to be invested at a rate of 8%.So how is Mr Raju’s human life value calculated?
HLV can be calculated as follows
To answer this question one has to know why life insurance is taken? Life insurance is taken mainly to replace financial loss in case of a loss of life of one’s beloved. The emotional loss one suffers is huge and irreplaceable but the financial loss can be made up. This is the essence of insurance.
One has heard the famous saying “Something is better than nothing”. Sure insurance cannot replace the loved one and the emotional loss one suffers on this loss .Insurance takes care of the financial loss suffered due to one’s loss especially if he is the breadwinner. Insurance gives one a chance to play with uncertainty and has the power to protect ones finances from the hand of fate. Surely a life insurance policy which matches ones needs is a must.
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