Human Life Value

Human Life Value

How much life insurance is recommended for you? In India, it is customary to approach an insurance advisor who may steer you towards his preferred policy while possibly never calculating the "Human Life Value." He might conflate your need for insurance with that for investments, and he might give you some examples that look good in the short term but not in the long run. The most important thing to realize is to never combine investments and insurance. How can we determine "Human Life Value" then? An easy example will be used to demonstrate this.
  • Mr. X’s Household expenses at today’s prices is 30,000 PM (Excluding Mr. X’s personal expenses and his Tax Liability)
  • Mr. X have Home Loan of about Rs.60,00,000 (Current Value)
  • Both have a child whose age is around 5 years and they need around Rs.20,00,000 in current terms for their child’s future education and marriage expenses
Then in above case we need to calculate each value in today’s term till the life expectancy of Mrs. X’s life span (It is assumed that Mrs. X is financially dependent on Mr. X for her whole life).

Then the above-mentioned 3 expenses should be calculated to find Human Life Value as below.
  • To maintain living expenditures until Mrs. X's death, they will need about Rs.2,58,45,710 assuming inflation will be 6% and an investment return of about 8%. With that amount of money, she could live until she was 70 years old while spending only Rs.30,000 a month, which would rise by 6% annually due to inflation. She must invest Rs.2,58,45,710 from which she will earn about 8%.
  •  In the event of his sudden death, then the existing Home Loan needs to be repaid from the insurance amount. Hence, we need to consider that value too while calculating his human life value.
  • Child’s expenses are also taken in today’s value. Hence, we need to consider that too for considering Human Life Value
The total amount needed for his family in the event of his untimely death after adding these three figures is around Rs.4,33,33,000. He therefore needs around Rs.4,33,33,000 in life insurance. It must again be adjusted yearly to account for inflation or periodically evaluated every three or five years.

Now deciding factor is, which Plan will cover this much Life Risk for you. Endowment Plans (You need to pay high premium to cover this much Life Risk with return being low), ULIPs (Expensive in terms of cost and Premium) and Term Plans (Pure Life Risk Cover Plans which are nowadays available in very competitive price).

Decide and cover your life risk, which is precious when you think about your dependents. Hope now you understood the value of “Insurance” and “Human Life Value”.

 
Location: India

Comments

Post a Comment

Popular posts from this blog

ARE YOU WORRIED ABOUT PRE-EXISTING DISEASES WHILE BUYING HEALTH INSURANCE?

Image
  Introduction Ailments that the insured had prior to purchasing health insurance are known as pre-existing conditions. According to IRDAI, a condition is considered pre-existing if the insured person received a diagnosis of it up to 48 months before obtaining the insurance. All chronic disorders, such as diabetes, asthma, high blood pressure, thyroid disease, and more, are regarded as pre-existing ailments. Pre-existing diseases in a health insurance plan: There is a pre-existing condition clause in every health insurance policy. For those who have pre-existing diseases, buying health insurance may be difficult. Prior to learning about the limitations on coverage for pre-existing conditions, determine what a pre-existing health condition actually implies. Pre-existing diseases waiting: In the context of health insurance, the waiting period refers to the period of time before which the insured person is not eligible to receive benefits under the policy for the listed diseases
Read more

FINANCIAL PLANNING FOR WOMEN AFTER LOSING THEIR PARTNER

Image
  Women may find it an impossibly difficult task to take charge of finances after the death of their spouse, especially if they are unfamiliar with the complexities of money management. As per a statement given by 35-year-old Sumita Chakraborty to the Hindustan Times, "I lost my husband during the second wave of the pandemic in India. He was just 40. In just a matter of a few days, the lives of me and my children were thrown out of gear completely. Things have been incredibly hard; the emotional upheaval and the grief have colored all aspects of our lives, and healing is going to be a long journey. Matters have been complicated on the financial front too since his demise.". Life seems too difficult, even for Sumita Chakraborty, who is a software engineer based in Delhi. Even though she is a well-educated woman with a sound professional background, managing finances while taking care of the household and children was a difficult task for her. It's really difficult and st
Read more

BALANCED ADVANTAGE FUNDS

Image
Balanced advantage funds are a type of hybrid fund that invests in both, equities and debt instruments. There is no set fixed threshold for exposure to a particular asset class. These funds can also modify their asset allocation as per the market conditions. When the equity market is trading at an all-time high, fund managers may increase the exposure to equities, while reducing it in falling stock markets. Unlike other funds, Balanced Advantage funds not only offer a mix of growth and fixed-income instruments but can also switch between asset classes dynamically. Balanced Advantage Funds asset allocation is determined by the dynamic asset allocation methodology. How do they work? Balanced advantage funds have a unique rebalance strategy where they can drastically reduce or increase the asset allocation towards equities or debt. Additionally, if the fund manager anticipates a rise in valuations and key indices, they might increase their equity exposure. But when they anticipate a m
Read more