The importance of life insurance policies is known to everyone. In case of the untimely demise of the person who earns the bread for the whole family, the insurance plan they have chosen before their death takes care of the dependent members. The calculation of human life value is an essential part of the process. The value of human life helps the earning person choose a plan that would benefit him and his dependents in the future. Human life value is a critical concept that many people overlook before selecting an insurance plan. The amount of money your dependents will need is directly proportional to the value of your life.
According to Sanjiv Bajaj, the joint chairman and MD of Bajaj capital, one must follow the rule of thumb while choosing an insurance policy. The rule of thumb that Sanjiv Bajaj is talking about says that the life insurance cover should be at least ten or fifteen times the current annual income of a person. For example, if a person has a yearly income of 7 lakhs, then they should have an insurance policy covering at least seventy lakhs to one crore.
Another significant factor while choosing the best insurance plan is the calculation of the number of years that your dependents are going to need the insurance money as a monthly payment. You should also keep in mind the loans and the significant one-time expenses like the education of all your children. Considering all the factors mentioned above, probably the best way to calculate the amount of insurance your dependents are going to require after your demise is a calculation of the human life value, which takes into account almost all factors and provides you with an idea of the best insurance plan for you and your dependents.
To calculate your life value, you must first determine the income in your current life phase. Then you need to subtract the expenditure in that particular period, the income tax you pay, and your insurance premium from the current income. The market inflation and discounting factor rate should also be taken into consideration. And then, according to the inflation rate, the value of the current income stream can be calculated. There are several online calculators available on the web which can determine your life value after getting the details of your income and the stream in which you work.