The human-life technique is a formula for determining the amount of insurance
coverage required in the event of a fatality. The method bases the calculation
of the insurance cover amount on the likelihood that the insured's family will
suffer financial loss. The individual's death is the insured occurrence. Every
requirement of a contract, including insurable interest, risk of loss, insured,
and insurer, should be met by a life insurance policy.
Why Human life Value matters
The "father of insurance education," Solomon Huebner, Ph.D., established the
Human Life Value as the de facto standard for calculating an individual's
lifetime insurable sums. Huebner set up his theory in opposition to the accepted
wisdom at the time (which at that time held no firm, objective, standard for
measuring the value being insured by life insurance). In 1915, he authored the
first life insurance textbook, which later became the required reading for
students pursuing certification as a Chartered Life Underwriter.
Any insurance policy's core tenet is that the thing being insured has value,
both financial and sentimental, and is susceptible to loss, harm, or
destruction. In order to replace the economic value of what is lost, damaged, or
destroyed, insurance is therefore used. For instance, in the case of home
owner's insurance, the insured item is the house. The price of the house is an
important factor to consider. The value of the vehicle being insured is crucial
information in the context of auto insurance. Additionally, the value of the
human life being insured must be understood in the context of life insurance.
Understanding Human Life Approach
When engaging into a life insurance arrangement, an insurer should take numerous
things into account. Age, gender, annual income, anticipated retirement date,
current medical conditions, and any habits are among the considerations. When a
family depends entirely or primarily on the income of one or more family
members, an insurance company uses the human life method.
The predicted financial loss to the family in the event of the earning person's
death is also estimated. The family's future financial demands are also taken
into consideration, along with the time period during which they will want
financial assistance, in addition to the current financial loss.
The goal of the human-life strategy is to prevent the insured's family from
experiencing hardship. The method is in opposition to the needs-based method.
The latter strategy aims to estimate the value of the person to the family in
monetary terms. The insurer takes into account the family history and any
genetic illnesses when determining the coverage.
The insurer must take into account the monthly costs as well as the provision
for medical insurance and other coverage for the entire family when evaluating
the amount of the insurance cover. the requirement for the replacement of family
possessions used on a daily basis, such as a car and other items crucial to the
family's level of living.
How to Illustrate the Human Life Value Concept
Using the Truth Concepts calculator suite, there are actually two ways to
calculate for HLV. The first is using the Maximum Potential Calculator, while
the second uses Cash Flow. You can choose either calculator, based on your
If you want to use Max Potential, begin by entering how many years your client
has left until becoming 65. Although we don't support traditional retirement
(spoiler alert: 87 is the new 65), most clients may agree with this age. Add
your client's income next. I'm done now.
You can see in the example below that over a period of 36 years, a 30-year-old
earned $100,000 every year. This provides a realistic picture of the client's
current financial situation, even though it doesn't take into account changes in
income and net worth. It essentially shows how much money the customer would
earn (and wish to replace) throughout his working years. His family would not
suffer financially if he passed away the next year.
Even though this is a somewhat broader sample, it gives the consumer a clear and
uncomplicated picture. In this case, the client has a lifetime earning potential
of $3.6 million. Why wouldn't he want to protect every dollar of his income? And
even then, the assumption is that he will retire at age 65 without receiving a
Cash Flow Calculator
Your go-to Human Life Value calculator is Cash Flow if you want to be more
specific. This scenario will give your clients a thorough understanding of their
HLV and is what we refer to as the "full truth."
Let's use the same 30-year-old with a $100,000 income in Cash Flow. Let's also
say that he makes 5% on his assets and gets a 4% raise annually. The income of
this client is worth $17.722 million in the future. That looks like roughly $3
million in today's money. This can be calculated by entering the future value at
5% over 36 years into a present value calculator. Accordingly, the client's
spouse would require roughly $3 million in today's money, earning 5% annually,
to replace the entire $17 million in future value. Unless the client also
happens to have $3 million in savings, the only way that $3 million is
conceivable is to have that in Death Benefit.
The "Future Savings" Element
A deeper truth regarding savings is also revealed by the Cash Flow calculator.
If this client is the primary breadwinner, he is probably also the primary
provider of savings. This implies that the income replacement has a limited time
left if he dies and the Death Benefit is paid. It will only take 35 years for
the amount to reach zero if the spouse uses it just to replace that $100,000 in
income. In other words, the spouse will desire to work and save to make up for
this loss of income source.
By copying and pasting the Present Value of around $3 million into Cash Flow and
maintaining it at 5%, we can demonstrate this. Then, just convert the $100,000
positive Cash Flow at 4% into a $100,000 withdrawal at 4%. You'll observe that
the account has been totally liquidated in the 36th year.
Isn't Buying Life Insurance An Inherently Altruistic Act?
One of the most pervasive and virtually unchallenged fallacies in the insurance
sector is the altruistic motivation underlying life insurance purchases. Since
it is so ubiquitous, it is considered "common knowledge" by the general public.
Financial advisors and insurance brokers frequently use it to defend subpar and
occasionally outright dishonest financial advice.
In The Economics Of Life Insurance, Huebner writes to this very idea:
"Everyone with average ambition wants to enhance their existing output as much
as they can and build a respectable estate. Life insurance helps the individual
creatively in the fulfillment of this desire in five main ways: by encouraging
initiative, by boosting and maintaining credit, by encouraging thrift, by
conserving and improving through wise investment that which may be saved out of
surplus, and by extending the working life itself.
Economists typically treat life insurance from the perspective that it serves
the purpose of taking money that already exists "from the many fortunates" and
distributing it to "the unfortunate few," rather than as a primary source of
wealth creation. This viewpoint, which reads life insurance as having a
distribution-based rather than a production-based core basis, is fundamentally
incorrect in its emphasis.
It is a reflection of the property mindset and mainly ignores the causal link
between the value of human life and the production of property values. After
careful consideration, it will become clear that life insurance plays a direct
and significant role in the production of wealth, particularly along the five
These innovative uses of life insurance are what this and the following chapters
are for. It is regretful that life insurance has historically been seen as a
mostly impersonal and charitable service that is almost entirely focused on
protecting widows and orphans and has little to no direct or indirect
relationship to the success and happiness of the insured.
Life insurance is not a nebulous, abstract concept. Contrarily, it is a very
specific proposal intended, as earlier chapters have demonstrated, to apply
economic principles relating to capitalization, depreciation, sinking funds,
indemnity, surplus allotment, and liquidation to the value of human life, as we
are accustomed to doing in the scientific management of property. Its primary
goal is to provide our economic life's nebulous and ambiguous components a
physical and clear form.
Comparable to the purchase of other economic goods or services, life insurance
is not altruistic in the sense that it should merit special praise. Instead,
buying it makes perfect commercial sense and is just plain proper when a
dependent family is involved-a husband's ethical responsibility, a wife's right,
and a child's claim.
Additionally, although while the function of life insurance is crucial and must
constantly be stressed, we shouldn't limit our understanding of protection from
life insurance to just protecting widows and orphans. There is absolutely no
desire to diminish this fantastic life insurance service. It's crucial to
understand that "life insurance protection" refers to more than just a wife and
kids, though. The idea is more comprehensive since it includes the insured
party-the premium payer.
To put it another way, a more impartial emphasis is needed. The overwhelming
majority of adults, approximately 98%, suffer economic difficulties. They need
to be protected through the life insurance method from such shortcomings in
terms of self-discipline, health preservation, thrift, investing, and the
systematic management of their finances. The insured person also benefits from
life insurance's protective effects, which make it possible for him to live more
effectively and completely than he otherwise could.
Man loves to deal in material goods that guarantee a certain financial outcome
for him. He is virtually always motivated by a sense of personal advantage when
making economic decisions. He is, in other words, admirably self-centered, which
is not at all a negative thing given the enormous economic advancement of our
country that is directly related to individual initiative motivated by
anticipated personal gain. With that in mind, should our emphasis on the
immaterial and purely altruistic nature of life insurance continue to be our
major method of communication with those who pay premiums?
This viewpoint appears to permeate most of our life insurance teaching, and as a
result, a large portion of our educational endeavor does not speak to man as he
is fundamentally composed. The focus is on the concrete elements and the
personal return from commendable private initiatives in various disciplines of
applied economic learning. Given that the subject content is as real and
beneficial to the buyer, why shouldn't we hold our insurance education to the
Shouldn't our goal be to show the buyer of life insurance that it is, in fact, a
very commendably selfish service that is beneficial from the standpoints of
increased initiative, freedom from worry and fear, maintenance and enhancement
of credit, thrift, investment, protection against business interruption,
protection against depreciation of estates already accumulated, scientific
management of the human life value, and health conservation?
Should we not promote the idea that every life insurance policy has two
beneficiaries, namely the people who are intended to get benefits in the event
that the premium payer passes away and, very importantly, the premium payer
himself while he is still alive?
One cannot legally overlook the essentially selfish act of safeguarding one's
own income, savings, and other assets by purchasing life insurance. The net
values a person generates for others and society can be used to calculate their
objective financial worth. This is not done out of altruism, but rather because
it is morally and practically necessary to live, protect one's personal
autonomy, and take care of oneself. It is the pinnacle of individual
Human life value may appear to be a large number of money, but it only truly
guarantees your client's precise income during their working years (assuming a
typical retirement). When you look at the calculators, it's actually an
incredibly fair amount.
The lesson here is that because of a "needs" analysis calculator, some people
are only purchasing $30,000 in insurance on their $50,000 in lives. However, if
you base your insurance coverage only on the bare necessities, your family will
only have the bare necessities. The only reliable way to determine the level of
protection your client "needs" is to use a Human Life Value calculator. Is this
to say that a customer can only purchase entire life insurance?
No, a mix of convertible term and whole life insurance can offer thorough
protection, adaptability, and cost. The important thing is that any choice you
assist your client in making include flexibility because uncertainty is a part
of life. Attending Truth Training will teach you more about how to use Truth
Concepts calculators to demonstrate the complete truth. You will learn new
methods to utilize and comprehend the calculators thanks to our three-day, live
- Sweta, Human-Life Approach, CLEAR TAX, NOV 18,2022,
- Human Life Value: The Forgotten Standard Of Life Insurance Planning,
- Elizabeth, The Human Life Value Approach and the Fallacy of "Needs
Analysis",TRUTN CONCEPTS,Feb 4 2022, https://truthconcepts.com/human-life-value-approach/
Award Winning Article Is Written By: Mr.Abhisek Sahu, 5th year law student at UPES, Dehradun
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