Protecting the financial well-being of our loved ones is a top priority for many of us. Life insurance is important in ensuring their financial security in the unfortunate case of our untimely demise. It is necessary to assess the economic value of our lives to determine the appropriate coverage amount. This is where the Human Life Value (HLV) calculator is needed. In this article, we will explore the significance of a Human Life Value calculator, how it works, and why it is an essential tool in the life insurance planning process.
What is Human Life Value?
Human life value (HLV) is the present value of an individual's future income, expenses, liabilities and investments. This is the amount of money that would be required to secure the lives of your dependents through term insurance in case you are no more. The HLV number is usually taken to understand how much money will be required to safeguard the financial interests of your loved ones. It is an essential thing that helps you determine the right amount of life insurance coverage you need.
What is a Human Life Value Calculator?
A Human Life Value Calculator is an online financial tool designed to estimate the economic value of a person's life based on various factors such as age, income, expenses, future financial goals, and inflation rate. It considers the potential future earnings and financial contributions an individual will make in his or her productive years.
Determining the Human Life Value
The process of calculating Human Life Value involves several key factors:
- Income and Expenses: The Human Life Value Calculator considers the individual's current income and projected future income growth. It also keeps track of living expenses, including daily expenses, loan repayments and any other financial obligations.
- Future Financial Goals: The HLV calculator considers a person's future financial goals, such as funding their children's education, buying a home, or planning for retirement.
- Inflation: Inflation is an important factor in assessing the value of human life. The calculator considers the impact of inflation on future expenses and income to ensure accurate estimates.
- Remaining Productive Years: The calculator analyzes the remaining years of the individual's productive working life to determine the overall economic value.
How is Human Life Value Calculated?
Calculating HLV is a complex process considering several factors such as age, income, expenses, liabilities and investments. The following formula is used to calculate HLV:
HLV = (Present Value of Future Income) - (Present Value of Future Expenses) - (Present Value of Future Liabilities) + (Present Value of Future Investments)
The Present value is the value of future cash flows in today's Rupees. It considers the time value of money, meaning money today is worth more than the same amount in the future.
Future income is the amount of money a person is expected to earn in the future. It considers factors such as salary, bonuses and other sources of income.
Future expenses are the expenses an individual is expected to incur in the future. It considers factors such as living expenses, education expenses, and other expenses.
Future liabilities are the debts an individual is expected to pay in the future. It considers factors such as mortgage payments, car loans, and other debts.
Future investments are the investments an individual is expected to make in the future. It considers factors such as savings, retirement plans, and other investments.
Why is a Human Life Value Calculator Important?
A Human Life Value (HLV) calculator is important for the below-mentioned reasons:
- Accurate Coverage: A human life value calculator helps determine the appropriate coverage amount needed to protect the financial future of dependents. It ensures that the insurance coverage adequately compensates for lost income, covers outstanding debts, and meets the future financial goals of the insured.
- Avoiding Underinsurance: Underestimating the coverage amount can leave dependents financially vulnerable. The Human Life Value Calculator provides a realistic assessment, helping individuals avoid the risk of being underinsured.
- Informed Decision-Making: By using the Human Life Value Calculator, individuals gain a clear understanding of their financial value and the impact their absence has on the financial stability of their family. This information helps them to make informed decisions regarding life insurance coverage.
- Financial Planning: The Human Life Value Calculator serves as a valuable tool for financial planning. It helps individuals identify gaps in their existing financial strategies and create a more comprehensive plan to achieve their long-term financial goals.
- Customized Solutions: The Human life value calculators consider individual circumstances, allowing customized calculations. This ensures that the life insurance plan is tailored to the specific needs and financial circumstances of the insured.
The Human Life Value Calculator is an essential tool for determining the appropriate life insurance coverage needed to protect the financial future of dependents. By considering various factors such as income, expenditure, financial goals and inflation, it provides a realistic assessment of an individual's economic worth. With the help of this tool, individuals can make informed decisions and secure the financial well-being of their loved ones.
When considering life insurance, it is highly recommended to consult RenewBuy’s POSP advisor, who can guide you using the Human Life Value Calculator and help you choose the right coverage for your specific needs.