value of human life

Can anyone put a price on human life? Is it possible to quantify the value of human life?

Every human being in this world is precious and invaluable to himself and his family. An attempt to quantify the value of human life may sound ridiculous.

But it becomes the main job of an underwriter to evaluate a human life in terms of money, to restrict the amount of insurance that can be provided to a person. Every person on this earth would like to be insured for a maximum possible limit and it is the insurance company’s job to cut a line for this limit and most importantly to protect themselves from the problems of underinsurance that countries like the United States are facing now.

Concept of Value of Human Life:

Suppose a person buys Rs.100,000/- ($2,500) car insurance for a car worth Rs.800,000/- ($20,000). The car suffers an accident and is totally damaged. Even if the insurance company accepts your claim in full, you will only get Rs.100,000 ($2,500). With this amount will you be able to buy the same car you had before the accident? The answer to this question would be ‘No’, because you have not insured your car for its gross value. In simple terms, the car was not insured for what it was worth, but instead was underinsured, thus nullifying the “Principle of Indemnification”.

Underinsurance sometimes leaves no trace of insurance when it fails to serve the purpose for which it was made. In the same way, a Human Life insurance should be sought, taking into account the economic loss that the family would suffer in the absence of this person and that should be the amount of the insurance. Instead of buying Life insurance policies as a tool to reduce the tax burden, provision for old age, to dabble in the stock markets on a small scale, etc., it would make sense if insurance was looked at from a replacement angle. economic value of human life.

The concept of the value of human life was founded by Dr. Solomon S. Huebner, the founder of ‘The American College of Life Underwriters’, in the 1920s. The HLV concept is used by various professionals such as insurers, courts, etc. to determine the economic value of a Human Life. For the victims of the ‘terrorist attack of September 11, 2001’ on the twin towers, the courts decided the amount of the settlement based on this concept.

Insurance companies use what is known as the VALUE OF HUMAN LIFE concept to compute the economic value of a person for his family. The amount the family would need to maintain the same standard of living in the absence of one person will be its financial value to the family. Rather, the financial loss to the family at the person’s death is their value to their family. This would be the maximum amount for which a person can apply for insurance protection.

Basically, the value of human life is based on the earning capacity of the individual. It is the amount the family will lose in your absence. Applying what is called the Human Life value concept, the amount of economic support that the person gives to her family is determined.

Calculating the value of human life requires a detailed analysis of many factors. Some of them are –

1. Annual income for life

2. Balance of the active income period until retirement

3. Personal Expenses

4. Inflation

5. Future salary increase, etc.

The first step towards calculating the value of human life would be to determine the person’s net annual income after deducting the amount spent by him for his personal use, such as insurance policy premiums, living expenses, income taxes, etc. etc. This amount will be the amount you provide to your family annually. The economic value of this life again depends on the length of your active earnings period. Suppose the person is 25 years old and his annual income after deducting all his personal and other expenses is Rs 200,000 (about $5,000). Assuming that he would continue in his current job until his retirement until age 55, his family’s income will continue for 30 years, provided he survives until retirement. So if he survives until his retirement, then the family would receive Rs.200,000 for 30 years, that is. 200,000 * 30 = 6,000,000 ($150,000). This will be the amount that the family will lose by your untimely death.

The value thus arrived would be the logical amount for which a person needs to insure himself, if he wants his family to maintain the same state of life in his absence. But this again depends on his ability to pay, i.e. his ability to pay the insurance policy premium in the amount of Rs.6,000,000 ($150,000), taking into account the requirements and circumstances of his family. current.

HLV calculation methods

Method – I: Income Replacement Value

This is one of the basic insurance calculation methods and is based on current annual income.

Insurance needs = annual income * number of years remaining until retirement.

If the annual income is Rs.100,000 ($2,500) and the age is 35 years. Assuming the retirement age is 60, the years of service balance is 25 years.

Insurance value = 100,000 * 25 = 25,00,000 lacs ($62,500).

Method II: Fixed Multiplier

Another method of calculating insurance is by applying a fixed multiplier on annual income. Multiply by the person’s age.

Age range                                     Multiplier

20 - 30 20

31 - 40 18

41 - 50 15

51 - 60 10

In the example above, the value of the insurance would be 100,000 * 18 = 1,800,000 lacs ($45,000). If the age is say 52 years with an annual income of 4 lacs ($10,000) the value of the insurance would be 400000 * 10 = 4000000 ($100,000).

Human Life Value (HLV)

This life insurance calculation method is based on the contribution you make and would have made to your family in the event of sudden death.
So HLV is defined as the present value of all future income. It also includes other fringe benefits, less personal expenses, life insurance premium and taxes.

Let us see this example for better understanding-

Age of ‘X’: 40 years old

Retirement age: 60 years

Current salary: 300,000 per year (expected to remain the same)

Personal expenses: 125,000

Net contribution to the family: 175,000 (300,000 – 125,000)

Suppose ‘X’ dies at the age of 40.

Family Lost Income: 175,000 * 20 years (60 – 40) * discount rate for 20 years
(Current value factor): 1900000

HLV calculation methods adopted by some leading insurers:

ICICI prudential life:

HLV based on:


retirement age

Financial Assets (TA)

Liabilities (TL)


% increase in income stream (assuming a fixed interest rate)

Existing SA (SA)

Addl SA = CPRO + TL – TA – SA

CPRO – Capital Required to Protect Lifestyle

MetLife – HLV Calculator:

HLV based on:

current age

Expected retirement age

Annual income

Annual increase

fringe benefits

Tax bracket/rate

Monthly Expenses (Own)

Investment rate of return

current life insurance

The value of human life estimated through any of the above processes MINUS the sum insured currently in force gives the amount of additional insurance that the person must take out to meet his/her future needs and for his/her family in the event of his/her unfortunate death.

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