What is it?
Human life value (HLV) means exactly what its name suggests—it is the value of a human life in money. Sounds heartless, but there is a money value of your life that is relevant for your dependants, even though the emotional value is priceless. You need to make good the money loss your death would have for those who depend on your income today and for the rest of their dependant lives. Therefore, you need to measure your worth, not only in terms of what you earn today, but also in terms of your future capability to earn. While buying a life insurance policy, the value of your policy or the sum assured that you choose should reflect this math. Hence, while buying a life insurance policy, you need to figure out your HLV in order to arrive at the sum assured.
How to calculate it?
Every year the value of your money erodes as inflation nibbles quietly. So, what you could buy today for Rs100 will cost you, say, Rs105 the next year. Apply this logic to all your future incomes and assess their present worth. You do this by discounting all future earnings to the present value of money. For example, HLV of a 30-year-old earning Rs10 lakh per year today would be Rs2.9 crore when he turns 60, assuming his salary increases at 10% each year and the inflation is at 6%. This means that this person’s life is worth Rs2.9 crore today, if we consider his earning potential for the next 30 years. Three important factors that determine HLV are age, income and expenses. You can afford to buy a cover worth HLV only through a term plan.