July 1, 2024
In life insurance, your Human Life Value {HLV} refers to a number that tells the present value of your future income expenses, your liabilities, and investments. According to financial and life insurance professionals like those from the HLV calculator at Monegenix, your human life value is usually taken to understand how much money is required to secure the lives of your dependents with term insurance policies, especially after your demise. The value helps provide money that protects your family and relatives in your absence.
When determining your human life value, especially the life insurance amount needed for your family and relatives, essential factors are considered. These factors are supposed to help ensure your dependents don’t suffer any financial distress after your demise. Also, the calculation takes into consideration five essential steps, including:
The first step in determining and calculating your human life value is considering both your average and annual salary and the potential for future increases of such wage. This factor is considered since it has a massive impact on your life insurance, especially if you die before the term expires for the type of policy you have.
In addition to estimating your remaining lifetime earnings, the next step in determining and calculating your human life value is subtracting a reasonable estimate of your annual income taxes and expenses based on the insurance policy you took. The subtracted value comes from your actual salary for your family and other dependents. Additionally, the amount deducted must be about 70% of the pre-death income of what your dependents receive.
Usually, this determines the period at which your dependents are fully grown and no longer require financial aid. The same is also the time until when you are assumed to retire. Usually, the determination of this time is different from place to place, especially since other states have different retirement expectations.
Besides determining the length of time to replace your payments, another consideration is selecting a discount rate for your future earnings. After the calculation, the discount rate you choose is usually a conservative figure for estimating future earnings. It also contains the rate of return for bills and other expenses. The discount rate is needed, especially for your insurance company, to determine and estimate your family’s death benefit and calculate the amount of interest your interest-bearing account should have.
After the above procedures, the next step is multiplying the length of time needed to estimate your future earnings to your net salary. The results you obtain here are assumed to be your rate of return which helps figure out the present value of your future profits. Therefore, your insurance company uses these results to estimate the death income your family gets.
After following the above steps, including determining your future earnings and selecting a discount rate, your human life value calculation begins. The procedure considers factors such as your current age, your retirement age, your liabilities such as outstanding loans, credit cards payments, and business debts. The process also involves speculating significant future expenses such as marriage, buying cars and houses, or your child’s education expenses. It also assumes your current savings and details of your existing life insurance policies.
To correctly calculate your human life value, use the value calculator especially to calculate the exact value for you. The calculator is easy to use especially considering it’s an online tool. You’ll need to enter details, including your age, retirement age, occupation, annual wage, and employment benefits. Sometimes, you’ll also be asked to enter your financial information and others like your spouse and dependents, especially your children. Also, remember the value you get changes based on your family condition, liabilities, current life state, and stage, plus your annual income. Therefore, the value you get after checking a few years back can differ on what you get currently based on how the above factors changed.
Like insurance policies, your human life value helps determine your insurance needs primarily based on your income, liabilities, savings, and expenses. By doing this, the value enables your dependents to receive considerable compensation in case of unfortunate events leading to your demise.
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Disclaimer: The information provided on the website is only for informational purposes and is not intended to, constitute legal advice, instead of all information, content, and other available materials.
