Amrit Nivesh | ARN 113567 | AMFI-registered Mutual Fund Distributor
Human Life Value, or HLV, is a way of putting a number on what your income means to the people who depend on it. It is used to get a first idea of how much life insurance cover a person might need.
The thought behind it is simple. You earn, and part of that income pays for your family’s life: the rent or the loan, the groceries, the school fees. If you were not there, that income would stop. HLV asks how much money would be needed to replace it.
What the idea says
A life insurance policy pays an agreed amount to your family if you die during the policy term. That amount is the cover. The question is how big it should be.
India’s insurance regulator runs a policyholder education site, and it explains that insurers often set the cover amount as a multiple of the income of the person being insured, along with the number of working years that person has left. HLV works from the same starting point. The more years of income your family would miss, and the more they depend on it, the larger the loss.
What to count
Income alone is a blunt number. A more useful way is to list what your family would still need to pay for if your income stopped, and then take away what they already have. Start with four things:
- Daily household expenses, for as many years as your family would need them.
- Home loans and other loans that would still be due.
- Your children’s education and marriage, the big costs that are still ahead.
- Your spouse’s future and retirement, since their income may be smaller or absent.
From the total, subtract your savings and investments that could really be used for these needs. What is left is the gap, and the gap is a better guide to cover than any rule of thumb.
You will sometimes hear a quick rule that cover should be some multiple of your yearly income. As a first look it can be handy, but it is only a starting point. Two people with the same income can need very different cover, because one has a home loan and two children and the other has neither.
Why it needs a second look every few years
Your numbers change. Marriage, a new baby, a new home loan, or a parent who now depends on you all raise what your family would need. A paid-off loan or bigger savings lower it. So cover that was right at thirty may be too small at thirty-six.
Looking at it every few years, or whenever something big happens, is enough. It does not mean buying more each time. Sometimes the answer is that you already have what you need.
What HLV cannot do
- It cannot give you an exact answer. Every figure in it rests on guesses about the future, such as how long your family will need support and how prices will move.
- It does not tell you which policy to buy. Cover amount and policy type are two separate questions.
- It does not replace a look at your premium budget. Cover you cannot keep paying for can lapse when it is needed most.
- It does not cover medical or other risks. Health insurance is a separate matter.
When you buy, read the proposal carefully and answer every question honestly. The policyholder site is clear that wrong or incomplete statements can lead to a claim being turned down.
Where to go from here
Some insurers’ websites have a cover calculator that walks you through the same list. Use it as a second opinion, not as the answer.
If part of the gap is a goal you are also saving towards, such as a child’s education, our goal calculator shows the monthly amount that goal would need over the years you have. You choose the return to test, and nobody knows the real figure in advance.