Human Life Value: What is it worth?

WHAT is 'human life value' (HLV)? Priceless, you say. Wrong answer! It has a price tag attached to it. That price tag is called 'insurance'. Yes, it is indeed difficult to put a price tag or insurance amount to a person's life. But it must be done so that those who are left behind do not suffer financially from the loss of an earning member.

HLV is a concept used to calculate the amount of life insurance cover that a person needs. HLV is your expected life time earnings, that is, the income you are expected to earn over the remainder of your working life, expressed in present Rupee terms.

Factors that needs to be considered while computing HLV:
1. Time frame during which you need to provide for your family
Say, your spouse, 25, is your sole dependent. After evaluating her health etc, she is expected to live to be 75. Which means, you'll need to financially support her for 50 years (75 - 25 years).

2. Map out different expense events
These include marriages, education expenses and other fund requirements of your child, until the age the children are ready to be independent.

3. Household expenses
Observe current household expenses and run a rough estimate of future household expenses as well.

4. External factors
Account for external factors like inflation and calculating how much more money in the future will be equivalent to the money spent in the current time.

5. Debt liabilities and Income by way of returns
Account for the remainder of the loans that would need to be paid over time and also factor in income from various investments you have made.

6. Medical expenses and emergency funds
Calculate an estimate of how much money should be set aside for medical expenses and also account for emergency funds that will be set aside.

Follow these points to arrive at an approximation of the sum of money you will need. This is your human life value in rupees.

However, you need to recalculate this from time-to-time as your lifestyle is likely to change over a period of time and unexpected expenditure is likely to crop up.