What is Human Life Value and How to Calculate it?

Your life is priceless, and it cannot be valued. Life is subject to risks of disability and death due to accidental and natural causes. If this worst-case scenario happens to you, there is a loss of income to the household. The financial damage to the family is even more if you are the only breadwinner.

You may not want your loved ones to suffer emotionally and financially in any situation. Hence, you must know your life's value and plan your investment accordingly. If you don't plan well, and in case of your death, you leave behind a generation whose financial condition goes down drastically.

When you earn, save and invest in the right way, you achieve your financial goals and secure the future of the upcoming generation.

What is Human Life Value (HLV)?

Human Life Value (HLV) is the present value of all future income you would expect to earn for your loved ones. It is the sum of the total income you are expected to earn before retirement.

It also indicates the economic loss a family would suffer in case of the unfortunate event of your early death. Human Life Value helps you determine the coverage amount for your life insurance need-based on your income, liabilities, expenses, and savings.

There are different ways to calculate human life value. The two popular ways are need-based and income replacement methods.

1. Income Replacement Method:

Your Annual Income * Years Left for Retirement

For example, if your income is Rs 10 Lakhs per year and you are currently 35 years and plan to retire at 50, your HLV is at least 10,00,000 * 15 = Rs 1.5 crore.

2. Need-Based Method:

You can calculate HLV using the online calculators available. However, you should know that the value keeps changing. The number changes with your life stage, family condition, and annual income. If you calculate Human Life Value at 25 when you are single, the value will differ when you calculate at 35, married, and having children. Hence, revisit the calculation regularly and not see it as a one-time activity.

Why do you Need to Calculate Human Life Value (HLV)?

If someone asks you your life value, you may not be able to answer. Also, if you want to do financial planning, it is essential to know the value of your life. Below are some of the reasons you need HLV:

1. Human Life Value is not easy to calculate. The methods discussed above help you solve the problem and give a number to human life value.
2. It helps decide the coverage amount you need to financially protect your family's future.
3. If you have taken a loan or plan to take one, the HLV changes. It helps you in loan management. How much loan you should take, when you should clear the debt, etc.

Life insurance plans can help you fulfil important financial needs in life. Your HLV is the maximum limit of your life cover need. Meaning, all the life insurance plans combined should have the life cover equal to your HLV.

However, you need to invest as per your goals and needs:

1. Term Insurance

It is one of the purest forms of life insurance. It provides financial protection to your loved ones against life's uncertainties. In case of your untimely death, your loved ones receive the sum assured by the insurance company.

Term insurance plans generally offers you additional inbuilt coverages like:

a) Accidental Death Benefit
b) Child Support Benefit
c) Accidental Total and Permanent Disability Benefit
d) Premium Waiver Benefit
e) Default Terminal Illness Cover

Also, depending on your family's needs, they can receive benefits such as a lump sum, monthly income, or a combination of both options.

Click Here to use Term Insirance Calculator

2. Guaranteed Savings Plan

It is another form of life insurance that also gives you capital safety. You get a guarantee of returns on the policy maturity. For your life goals like a child's education or marriage, you cannot take the risk with the maturity amount. These plans make sure your most important financial goals are secured - in either case, if you outlive the policy tenure or in the unfortunate event of your death.

3. Unit Linked Insurance Plans

Unit Linked Insurance Plan is a financial product that gives you a wide range of investment options. You can invest in multiple well-diversified and professionally managed portfolios of equity stocks or fixed-income securities.

ULIPs like Invest 4G from Canara HSBC Life Insurance offers you additional features. For example:

a) Invest for 99 Years of Age
b) Four automated portfolio strategies for safeguarding your equity growth
c) Premium protection option to ensure funds for child’s important goals even after your death
d) Systematic withdrawal options for turning your ULIP fund value into tax-free regular income

4. Annuity or Pension Plans

Annuity or pension plans convert your wealth into consumable monthly or quarterly income. You can invest in two types of annuity plans – immediate and deferred. Both plans can offer stable lifetime regular income.

Learn the difference between an annuity plan and life insurance plan.

Annuity plans from Canara HSBC Life Insurance offer the following benefits to investors:

a) Hold single or jointly with spouse
b) Lifetime guaranteed income
c) Bonus additions for deferred annuities
d) Life cover for protection of spouse

HLV keeps changing as your life situation changes until you retire. As your income increases, your HLV will increase. To ensure your family is protected for the amount equal to your HLV, you should invest in the correct financial instruments.