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Human Life Value (HLV)

Human Life Value (HLV) is a tool that determines your financial value to your loved ones.

Human Life Value

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Calculating Human Life Value in life insurance
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If you are the sole or primary breadwinner in your family, it's a good idea to invest in a life insurance (LI) policy. When you purchase a Life Insurance policy, you are covered for the duration of the policy and if you pass away during the policy period, your family receives financial assistance in the form of sum assured. One of the ways to determine this sum assured or life insurance coverage amount is by finding out your Human Life Value (HLV) quotient. Read ahead to know more about calculating Human Life Value in Life Insurance.

What is Human Life Value (HLV)?
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Human Life Value (HLV) in life insurance refers to the amount or value assigned to how much you earn over a period of time. This HLV is used to determine life insurance coverage amounts, to calculate how much your family should receive as payout in case of your death.  

An HLV amount is calculated by using certain criteria around your life and income, such as your age, gender, job, health, and lifestyle habits. Your HLV is a value that should be able to replace your income when you're no longer around, so that your beneficiaries can maintain their current lifestyle, cover expenses, pay for education fees, etc.

How to calculate Human Life Value (HLV)
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Human Life Value can be calculated with the Income Replacement Method and the Need-based Calculation.

Income Replacement Method
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As the name suggests, the Income Replacement Method to calculate Human Life Value considers your earnings over the course of the year. This annual income is used to calculate how much your family needs to pay for groceries, utilities, and education, as well as paying outstanding amounts. 

In general, the Income Replacement Method tries to calculate for the highest slab possible so that your family can live comfortably. A good rule of thumb is to calculate ten times the value of your annual income. This amount will include a margin for inflation and should cover your family's daily expenses, education, and be able to clear outstanding balances.

Check out: Income Replacement Calculator

Need-based method
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Calculating Human Life Value with the Need-based method factors in financial needs or expenses for as long as the youngest person in your family lives. You will need to identify how many people in your family you want to financially secure, any outstanding payments such as loans or mortgages, big payments including weddings and sustaining their lifestyle. The amount you arrive at is your Human Life Value according to the Need-based Method. Note that the Need-based Method will change as the years roll on. For instance, your needs while single will be different than when you have a spouse and school-going children.

What are the key factors in assessing Human Life Value?
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Human Life Values are calculated by considering the following key factors.

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Your age plays a big factor in determining your Human Life Value. When you're younger, you have many years ahead of you in which you can accumulate savings for your family. As you age, you will have fewer years left to work, as you move towards retirement. However, with age, your salary might also increase. All this is factored-in while determining the HLV.

Income and earnings
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Whether you're salaried or self-employed, your source of income will be a major contributing factor in your Human Life Value. This income will be projected for the next few decades to get a sense of how much you would earn over the course of your lifetime.

Health and lifestyle habits
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Your health matters in calculating your Human Life Value. The healthier you are, the more you can earn for your family. Health issues, sudden injuries, or being incapacitated can impact how you earn, which is why it is crucial to factor in your health status and how long you can work for, or how long you can earn. 

Drinking, smoking, and other lifestyle habits can have a negative effect on your health. This will, directly or indirectly, affect your earning potential and thus such lifestyle habits are also considered while calculating the HLV.

Frequently Asked Questions (FAQs)
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Here’s a list of common questions and answers related to Human Life Value in life insurance.


What is the meaning of the terminology Human Life Value when it comes to calculating life insurance coverage?

Human Life Value (HLV) is an amount that factors in the income, expenses, liabilities and investments in the future of an earning individual. It helps you figure out your life insurance coverage amount, or the costs involved for your family to live after you pass away or cannot work. 

How is Human Life Value calculated?

Human Life Value can be found through the Income Replacement or Need-based calculations. The Income Replacement calculation factors in how much money your family requires to cover expenses, education, and pay outstanding amounts. This is done by understanding how much you will earn over your lifetime. Need-based calculations are done based on how much money your family needs to pay for their lifestyle in your absence. 

Why is the Human Life Value important?

Your Human Life Value is important as it helps to know the sum assured you should opt for while purchasing a life insurance policy. The premium charged by the insurer will also in one way or the other depend upon this value. The Human Life Value is especially crucial if you're the sole breadwinner of your family, as it will ultimately determine the payout received by your chosen beneficiaries (family member/members) in the unfortunate event of your death.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.