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What is Human Life Value (HLV) & How to Calculate it?

Human Life Value (HLV) is a financial measure of an individual's economic worth, considering their future earnings and contributions. It is calculated by estimating the present value of future income, expenses, and investments over a specified period.

  • 67,254 Views | Updated on: Jul 15, 2024

Determining the value of human life is a complex and thought-provoking task. Human Life Value (HLV) is a concept used by financial planners, insurance professionals, and individuals alike to assess the economic worth of an individual’s life. While it may seem difficult to assign a monetary value to something as intangible as a person’s life, calculating HLV can provide valuable insights for financial planning, risk management, and insurance needs.

Before you explore how to calculate human life value, let’s first understand human life values and life stages in life insurance.

What is Human Life Value?

To ensure that you have picked the correct sum assured, insurers use the HLV calculation method. The full form of HLV is Human Life Value, which represents the present value of future income, expenses, liabilities, and assets. It is typically used to determine how much money would be needed to protect the lives of your dependents with term insurance if you were to pass away. By knowing your human life value in insurance, you can quickly arrive at an ideal sum assured amount.

HLV in insurance refers to the monetary value attached to you today to get an idea of the value of your loved ones’ future expenses. This is calculated based on the current inflation rate. It is essential to secure your loved ones by meeting their needs after you, which is where the whole concept of human life value comes in handy.

Why is the Human Life Value Calculator Important?

The Human Life Value (HLV) calculator helps determine the economic value of a person’s life based on various factors such as income, expenses, age, and financial obligations.

Financial Planning

Financial planning is the cornerstone of achieving long-term financial stability and security. The HLV calculator plays a vital role in this process by quantifying the economic worth of an individual’s life. This calculation considers current and future income, living expenses, savings goals, and debts.

Insurance Coverage

One primary reason for calculating HLV is to determine the appropriate amount of life insurance coverage. Life insurance aims to provide financial security to an individual’s dependents during their untimely demise. The HLV calculator helps ascertain precise insurance needs by considering factors such as income replacement, debts, education costs for children, and other long-term financial commitments.

Estate Planning

Estate planning involves managing and distributing a person’s assets after their death. The HLV calculator is instrumental in this process as it provides a clear picture of an individual’s financial worth. It helps estimate the wealth that needs to be managed and distributed among heirs.

Business and Partnership Valuation

For business owners and partners, the HLV calculator is an essential tool for business and partnership valuation. It helps determine each partner’s economic contribution to the business. In case of a business partner’s untimely death, the HLV can guide the buy-sell agreements, ensuring that the deceased partner’s family is fairly compensated.

How to Calculate Human Life Value?

HLV in insurance can be calculated using a human life value calculator available on various websites. The HLV calculator calculates the income replacement using the human life value formula.

Consider this example

If your annual income is ₹5 lakhs, of which one lakh you spend on personal expenses. The surplus amount of ₹4 lakhs, your economic value, is the remaining amount for your family. Considering the tax payable, insurance premium, retirement age, number of working years, and expected rate of return, your human life value will be ₹3.9 lakhs.

While understanding how to calculate human life value, it is essential to remember that inflation will significantly impact the value as it will determine your expenditure. Therefore, the human life value calculator, or the HLV calculator, will also calculate the current inflation rate.

Steps to Calculate Human Life Value (HLV)

Determining the value of human life may seem like an abstract concept, but it is significant when it comes to financial planning and risk management. Human Life Value (HLV) is a method used to assess an individual’s economic worth based on their potential income and the financial impact their absence would have on their dependents. Calculating HLV can help individuals and families make informed decisions regarding life insurance, retirement planning, and overall financial security.

Step 1: Evaluate Income and Potential Growth

The first step in calculating HLV is assessing the individual’s income and future earning potential. Consider factors such as age, education, skills, and professional trajectory. It is important to project income growth over the individual’s working years, considering promotions, salary increments, and potential career changes. This evaluation provides a baseline for estimating the economic value the individual brings to their family or dependents.

Step 2: Determine Living Expenses

To calculate HLV accurately, it is crucial to identify the individual’s current and projected living expenses. This includes costs related to housing, utilities, transportation, healthcare, education, and other essential needs. Consider inflation and potential changes in lifestyle as the individual progresses in their career or reaches different life stages. Understanding the individual’s expenses helps estimate the financial support required to sustain their dependents in their absence.

Step 3: Calculate Dependents’ Financial Needs

Next, the financial needs of the individual’s dependents in case of their premature death are determined. Consider the number of dependents, their age, education expenses, healthcare costs, and any outstanding debts. Factor in both short-term and long-term financial requirements. For example, the calculation should include childcare costs, school fees, and college funds if there are young children.

Step 4: Account for Debt and Liabilities

When calculating HLV, consider the individual’s outstanding debts and financial liabilities. This includes mortgages, personal loans, credit card debts, and any other obligations. These debts must be settled in the event of the individual’s death, and failure to account for them can burden the surviving dependents.

Step 5: Adjust for Inflation and Discount Rate

Inflation and the time value of money are crucial considerations when calculating HLV. Adjust all future income, expenses, and financial needs for inflation to ensure an accurate assessment. Additionally, a discount rate should be applied to account for the fact that future income and expenses are worth less in today’s terms. The discount rate reflects the potential return that could be earned on investments over time.

Step 6: Determine The Present Value

By applying the discount rate, the future cash flows associated with income, expenses, and financial needs can be converted into their present values. Summing up the present values of these cash flows provides an estimate of the individual’s HLV.

Example of the Human-life Approach

Mr. Sharma is 35 years old and the sole earning member of his family. He has a wife and two young children. He wants to ensure that his family can maintain their current standard of living and meet their financial obligations in case of his untimely demise.

The HLV is calculated based on Mr. Sharma’s current annual income, future earning potential, expenses, liabilities, and the years he expects to work until retirement.

Let us assume Mr. Sharma’s current annual income is ₹10 lakhs, and he plans to work for another 25 years until retirement at age 60. Considering inflation, future expenses, and his family’s financial needs, his HLV is estimated at ₹2 crore.

Based on the HLV calculation, Mr. Sharma purchased a term insurance policy with a sum assured of ₹2 crore. This amount is intended to replace his income and provide financial support to his family in case of his demise during the policy term.

Key takeaways

  • Insurance HLV, or human life value, involves assigning a monetary worth to oneself to estimate the potential future expenses of one’s loved ones.
  • The initial step in determining HLV is evaluating the person’s income and capacity to earn in the future. This assessment takes into account various factors, such as age, education, skills, and professional trajectory.
  • To calculate HLV accurately, it is crucial to consider both the individual’s current and anticipated expenses.
  • Identifying the financial requirements of dependents in the event of an individual’s untimely death is essential.

Final Thoughts

Calculating Human Life Value (HLV) is a complex process that involves assessing various factors to determine the economic worth of an individual’s life. While no formula can fully capture the intrinsic value of human life, HLV calculations can provide a useful framework for understanding the financial impact of an individual’s death or disability on their dependents and loved ones.

FAQs on Human Life Value


How important is it to plan for the well-being of your family in the case of any unfortunate event?

Planning for the well-being of your family in the case of any unfortunate event is of utmost importance. Life is unpredictable, and while we hope for the best, it is crucial to be prepared for the worst


Who invented human life value?

Human Life Value (HLV) is not attributed to a single inventor but rather emerged as a framework within actuarial science and insurance underwriting. HLV is a quantitative measure used to assess the economic value of an individual’s life based on factors such as age, gender, occupation, income, and other relevant variables. It is commonly employed in the insurance industry to determine the amount of life insurance coverage a person should obtain.


How can you assess your human life value?

Assessing your Human Life Value (HLV) involves determining the financial worth of your life in terms of your future earnings potential and the financial responsibilities you have towards your loved ones. Although the concept of HLV is subjective and can vary based on individual circumstances, here are some key factors to consider when assessing your HLV:

  • Income and earning potential
  • Expenses and liabilities
  • Family and dependents
  • Inflation and investment returns
  • Insurance coverage
  • Health and lifestyle factors


What is the primary purpose of a Human Life Value (HLV) calculator?

The primary purpose of a Human Life Value (HLV) calculator is to estimate the economic value of an individual’s life based on factors such as income, expenses, and financial obligations. It helps determine the amount of financial support dependents need in case of the individual’s death.


Is the human life value the same for everyone?

No, the Human Life Value (HLV) varies from person to person based on age, income, occupation, lifestyle, and personal financial responsibilities. It is a personalized calculation reflecting individual circumstances.


How often should I recalculate my human life value?

It is recommended to recalculate your Human Life Value (HLV) periodically, especially during significant life events such as marriage, childbirth, career changes, or major financial decisions. This ensures that your insurance coverage remains adequate as your financial situation evolves.


Can a human life value calculator help with retirement planning?

A Human Life Value (HLV) calculator can assist with retirement planning by estimating the income needed to maintain your lifestyle until retirement age. It also helps determine appropriate insurance coverage and savings goals to ensure financial security during retirement.


How does inflation impact the human life value calculation?

Inflation impacts the Human Life Value (HLV) calculation by reducing the purchasing power of money over time. The HLV calculator considers inflation rates to accurately project future financial needs. Higher inflation rates increase the estimated HLV to account for increased living expenses in the future.


How accurate are human life value calculators?

Human Life Value (HLV) calculators provide a reasonable estimate based on the information provided about income, expenses, and other financial factors. However, their accuracy depends on the completeness and accuracy of the input data. Consulting with a financial advisor can provide additional insights and ensure the HLV calculation aligns with your specific circumstances and goals.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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