Life is unpredictable. Though you may commit
yourself to planning each and every rupee of your financial life, you never
know what is round the corner. An unfortunate and unexpected event may lead to
a life cut short, a financial plan cut short and a family not only in an
emotional but also a financial turmoil. This is where life insurance comes in.
Purchasing a life insurance cover in any form (term, endowment, etc.) ensures
that your family is financially secure even when you are no longer there to
provide for them.
Importance of HLV
The key to ensuring your family’s financial
security lies in the quantum of insurance cover you wish to purchase. So, how
do you arrive at this magic figure? Well, by knowing your Human Life Value
(HLV). The HLV provides an indication of the insurance cover required to ensure
the financial security of your dependents after taking into account your life’s
existing and future financial situation.
Factors impacting your HLV
Factors such as your age, annual income, age
of retirement, goals, assets and liabilities, current and future expenses and
of course, the existing insurance cover, if any, are considered.
Annual
Income- Your average annual income is computed for a
given number of years, beginning from your present age to the age of
retirement, adjusting for increments. All expenses such as taxes, EMIs,
household expenses, etc. are deducted from the annual income.
Sources of Income other than
Salary- Over and above your salary, you may have
other sources of income such as rental income, investment income, dividend
income, pension received by your parent(s) if any, etc. All these are also
considered as annual cash inflows.
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