The Buyt Desk
Purchasing a term life insurance policy is an important decision. But what is the appropriate size of the cover that you should purchase? Human Life Value(HLV) evaluates your value and helps you in choosing the correct insurance cover amount.
Evaluate the Right Cover Amount
The right sum assured is based on the stage of a candidate when the cover is being purchased. For example, if an individual is below 40 years of age, he/she must choose a plan having a cover of 20x the yearly salary. However, candidates above 40 years of age must go for a sum covering about 10-15 times the annual income. Alongside this, the family size and expenses should be considered.
Computing the coverage amount without any doubt is easy. For estimating the term insurance cover amount, better understand the Human Life Value.
What is HLV (Human Life Value)?
In India, death is a challenging conversation. So, connecting a price to one’s life is even more challenging. But, determining a value on life is used to evaluate the type of monetary support your dependents will require in your absence.
Experts suggest that every person should not only choose a term plan, but they must do so after examining their correct Human Life Value. This is true that no value or amount can cover up the presence of a person. But, a policy you have purchased to secure the future of your family members can at least lessen their financial sufferings. HLV is not computed depending on the value brought by the candidate to their household. But, it is calculated considering the financial value of a policyholder. The liabilities in the course of the life of the candidate are also put into consideration.
Lifestyle, rate of inflation, changes in income, and living standard are other factors that help in computing the right amount.
Method to Compute HLV
Human Life Value or HLV is calculated based on several factors. It includes the current age of a person, monthly expenses, potential retirement age, monthly payments, EMIs, probable future investments, and current savings. One-time heavy investments such as education or marriage of children should also be considered to compute HLV.
Let us assume that a 30-year-old person with Rs 25 lakh yearly earnings must consider a total life cover of Rs 5 crore. For some people, this amount might seem big. But, the reality lies in its comprehensive calculation. A calculation based on inflation movement and long-term FD (fixed deposit) rates will reflect that a family may require a loan for their regular investments when they have a life cover of Rs 1 crore.
On the other hand, a family with a life cover of Rs 5 crore will maintain the existing lifestyle without any stress and can provide better education and healthcare to their children and other members.
Final Words
To financially secure your loved ones, a term insurance policy is a crucial step to moving on the right path. But, this pure intent can result in wrong outcomes if you fail to compute the HLV properly. An incorrect calculation can just save them from a shower instead of protecting them from a storm. So, according to the most reliable insurance companies, purchasing an insurance cover of a minimum of 10 times your annual earnings is worth it. They also recommend computing the true value based on the range of factors mentioned above to determine the sufficient SA under a term life insurance policy.
Several online calculators or tools are also available to figure out the HLV. Hence, you can also use them but be sure to select only the trustable calculators. Compare several policies and carefully read the terms and conditions. Don’t forget it is a lifetime decision and can’t be made with any negligence by avoiding the examination of important aspects attentively.
