Every body will agree, a human being is an income generating asset. Every individual is unique with set of professional skills, business acumen and manual labour, capable of generating revenue. This asset can be lost due to unpredictably early death or through illness and disability caused by accidents.
Accidents are uncertain. Death will happen, but the time is uncertain.
If death occurs around retirement age, where normally income ceases, the person has generated earnings during productive years and has made legitimate post retirement arrangements. But if it happens much earlier without proper arrangements, there can be losses to the person and dependents. Insurance is necessary to help those dependent on the income.
Based on ones anticipation, a person has made provisions. Realisations of arrangements made are inadequate, can happen if s/he outlives planned years. Insurance is great help for those who live longer.
So, we can summarise, living too long can be as much a problem as dying too young.
Insurance is an exclusive instrument which reduces “risk of living too long or dieing too early.”
Human Life Value
Accidents are uncertain. Death will happen, but the time is uncertain.
If death occurs around retirement age, where normally income ceases, the person has generated earnings during productive years and has made legitimate post retirement arrangements. But if it happens much earlier without proper arrangements, there can be losses to the person and dependents. Insurance is necessary to help those dependent on the income.
Based on ones anticipation, a person has made provisions. Realisations of arrangements made are inadequate, can happen if s/he outlives planned years. Insurance is great help for those who live longer.
So, we can summarise, living too long can be as much a problem as dying too young.
Insurance is an exclusive instrument which reduces “risk of living too long or dieing too early.”
Human Life Value
The quantitative value of the future earnings of a wage earner. By calculating the human life value, one may determine the amount of life insurance to purchase on an applicant. By determining the average income of a wage earner, the number of years the wage earner is going to work and the present value of the income of the wage earner, one can calculate the human life value of a wage earner.
To illustrate the Human Life Value lets take an example,
A 30 years old gentleman works at an organization, willing to retire at age 55. His annual income wide salary is Rs. 2 lacs per annum. This means he will earn Rs. 2 lacs for next 25 years tallying the earning to whooping Rs. 50 lacs at present value. Thus his Human Life Value is considered as Rs. 50 Lacs.
(While calculating HLV, future increase in salaries are not considered, nor inflation. This is the simplest method of calculating HLV. Finance savvy can add up such factors to have more accurate HLV)
If this gentleman dies today, his dependents suffer loss of all the revenue he would have earned in future, which is Rs. 50 Lacs. Thus HLV gives a ballpark figure of basic Life Insurance Coverage required by an individual.
To illustrate the Human Life Value lets take an example,
A 30 years old gentleman works at an organization, willing to retire at age 55. His annual income wide salary is Rs. 2 lacs per annum. This means he will earn Rs. 2 lacs for next 25 years tallying the earning to whooping Rs. 50 lacs at present value. Thus his Human Life Value is considered as Rs. 50 Lacs.
(While calculating HLV, future increase in salaries are not considered, nor inflation. This is the simplest method of calculating HLV. Finance savvy can add up such factors to have more accurate HLV)
If this gentleman dies today, his dependents suffer loss of all the revenue he would have earned in future, which is Rs. 50 Lacs. Thus HLV gives a ballpark figure of basic Life Insurance Coverage required by an individual.
No comments:
Post a Comment