Human life value (HLV)
The key role of life insurance is to provide protection for the family of the insured, should the insured die unexpectedly. It does this by paying out the sum insured under the policy, should the worst happen. But how much should this sum insured be? How much is the insured’s life worth?
What is human life value?
Ask a person how much their life is worth and without a second thought they will say that human life is priceless and no amount of money can compensate for the value of a human being. But insurance companies and their agents will differ. To arrive at the amount of insurance cover that a person should take out they need to assign a monetary value to human life. This is called human life value (HLV). Like real estate, equities/shares or commodities, a human being is also an asset and has the potential to generate income. Through human life value (HLV) the insurance company tries to measure the economic value of a person or how much the person is worth in monetary terms.
In life insurance, HLV is used as a yardstick to determine how much life insurance cover a person should have. The correct cover will ensure that if the person dies today, there will be no economic loss to their family. Of course, emotional loss cannot be compensated for. The lump sum amount that the person’s family will get from the insurance company will compensate for the future income of the life insured; the income they would have earned had they survived.
How much life insurance should one have?
What many people often do not realise is that, in spite of having a number of insurance policies, if the amount of cover provided by the individual policies is small they can be grossly underinsured. So what then is the correct amount of life insurance cover that a person should have? We can answer this by looking at the different ways of arriving at human life value (HLV). The amount of life insurance cover that a person should have should be equal to their HLV.
Anand Khemka
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+91-8287041341
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