Guarding the future of your loved ones is a responsibility one can fulfil by opting for a life insurance policy. Taking care of the family’s needs when one is with them can be easy. However, when one is no more, it is the sum assured that can help the financial dependents of the policyholder deal with their monetary needs. Understanding the right sum assured amount is, therefore, very important. One way of going through the process is to ascertain the human life value of the policyholder. This value is arrived at after taking several factors subjective to the individual and is therefore different for every person.
What is human life value and how does it affect the life cover?
Human life value in life insurance can be defined as the financial loss that a family can suffer when their primary earning member passes away. The value considers your present and future income until the time you retire. The hike in your income as you age and go ahead in your career is also taken into account to arrive at a value that helps you understand the life cover you want. Along with the income, other financial aspects are also considered.
The higher the human life value of an individual, the larger will be the sum assured they would ideally require. This also means that one will have to pay an increased premium. Therefore, an understanding of the factors that determine the human life value is important, so that one can control some of the variables and thus reduce their premiums.
Why does human life value differ for each person?
Each person’s career growth is different
The most important determinant of human life value, income, differs from person to person. People earn differently and on different income scales. This income also determines the lifestyle that they and their loved ones live. Thus, the human life value of a person drawing Rs 25 lakhs annually would be different from that of a person with an annual income of Rs 10 lakhs.
Expenses differ from person to person
A 40-year-old father of two children would ideally have more expenses to look after than a 28-year-old with no financial dependents. One way of calculating the human life value is to use the human life value calculator. Similar to the life insurance premium calculator, this tool asks you to input a variety of details to get to the estimated value. You may be asked about the various things you spend on regularly, such as housing, travel, education, medical necessities, subscriptions, food and groceries, and so on. Since these expenses differ for everyone, the estimated value, too, is different.
Along with your current expenses, your future financial goals and plausible expenses are also considered to determine your human life value.
Liabilities also play a role in the human life value
If the policyholder undergoes an untimely demise, the financial shock to the family would also include having to pay the outstanding loans and other liabilities incurred by the policyholder during their lifetime. For someone, it may be a home loan or a car loan. For others, it may be a personal loan. These have to be considered when deciding on the life cover of the policy. These different liabilities, too, therefore, lead to a unique human life value for each individual.
Some people may be better financially protected
The financial protection that each person carries is also different. Your human life value may be significantly lower, for instance, if you have a spouse who also contributes financially to the family. In case anything unfortunate happens to you, the financial shock would not be as severe if you had been the only earning member.
Plus, if you have a family health insurance policy that protects the health of your loved ones, then too will your human life value reduce. This is because you have a stronger financial security that can help you and your loved ones in times of crisis.
One should also remember that the human life value of each person changes as they age and undergo changes in life. Therefore, one should periodically check their human life value before buying a life insurance policy.
Losing an earning family member can be a very harrowing experience for their loved ones. With the help of tools such as the life insurance premium calculator and the human value life calculator, you can plan out a good life insurance policy to relieve the worries and ensure that your loved ones are financially worry-free in your absence.
