How do you calculate human life value? Why is it essential before buying a term life insurance policy?

You must first calculate your Human Life Value (HLV) if you want to buy a term insurance policy.

Calculate your Human Life Value

Human Life Value or HLV is a way to compute coverage amount. The insured sum depends on the life stage of a person. For example, a person under 40 years old must choose a plan with 20 times their annual salary. People above 40 must look for an assured sum of 10-15 times their yearly income. You must know the Human Life Value (HLV) to evaluate the term life insurance policy coverage amount. 

Read: Everything you need to know about life insurance

What is Human Life Value or HLV?

It is difficult to attach a price to a person's life, as death is not pretty. While no one can put a price tag on life, it is used to estimate the monetary support a person's family gets upon their death. Opting for a term life insurance policy is not the only thing. One must calculate the precise HLV before availing of it. People believe that HLV is calculated based on a person's value to their family. However, it is computed considering the policyholder's liabilities and financial worth. Other factors include inflation, the standard of living, lifestyle, and income. 

How to Calculate Human Life Value (HLV)?

Human Life Value is calculated after considering a person's probable expenses in the future, monthly expenses, potential retirement age, current savings, EMIs, and current age. Other considerations include one-time expenses like marriage or education of their children. For instance, a 28-year-old person earning Rs. 23 lacs annually can look at Rs. 4.5 crore life cover. It might sound high, but its calculation explains it. Inflation and long-term FDs will prove that if a family takes an Rs. 1.5 crore loan, the life cover will be Rs. 1.5 crore; however, if there is an Rs. 4.5 crore cover, the person's family can maintain their current lifestyle and provide themselves and their children with healthcare and education. 

Read: Difference between term and traditional life insurance

A term life insurance policy is advised to protect your loved ones financially. However, it can have disastrous consequences if you don't calculate the HLV correctly. The difference lies in the coverage amount. Instead of getting a higher coverage amount, a wrongly calculated HLV can lead to a lower coverage amount. You must buy insurance to cover at least ten times the annual income. You can use a human life value calculator online to arrive at the precise human life value. 

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