Your life is worth $45 million? Worth $160? We offer some insight
Determining the monetary value of a human being’s life might seem like a cold and impossible calculation, but bear with us.
Some say that the value of a human life, at least when it comes to what the physical body is worth as a commodity, is $45 million. Others note that if you were to simply render the body into its various elements and then sell those off, you’d be left with just $160.
But defining value is a dicey consideration. Can your life continue to provide “value” once you’ve shuffled off this mortal coil?
Solomon Huebner was once the Emeritus Professor of Insurance at the Wharton School. He was also Emeritus President at The American College of Life Underwriters and Emeritus Chairman of the Board of Trustees of the American Institute for Property and Liability Underwriters. He is renowned as “the father of insurance education.” But Huebner is perhaps most famous for his concept related to “human life value.” The concept ultimately became the standard method of calculating insurance value and need. As for his understanding of insurance information he literally wrote the book on the subject, the classic Life Insurance.
So back to the idea that one can calculate – and strategically determine – how much a person is “worth.”
According to Huebner, an individual person’s worth can be figured using mathematical formulations aimed at determining a person’s future earning potential. With that concept as a baseline, the calculation is then used to assess “human life value” for insurance purposes. It’s particularly relevant in terms of applications to life insurance.
Called the Human Life Value Approach, it’s a method of deciding how much life insurance an individual might require. The method takes into account a person’s income, expenses and potential years remaining in their workplace, and even includes any possible depreciation in value of the dollar.
In 1924, Huebner pointed out that the value of human life can be expressed as a dollar valuation. He said that determining the economic value of a person by discounting estimated future net earnings used for family purposes at a reasonable rate of interest, he could quantify the “value” of a given human life.
As it’s a bit of a controversial approach because it fails to factor in inflation, possible wage increases or improved standards of living, Huebner’s Human Life Value Approach has now been replaced by what’s known as a Needs Approach, which is more practical.
The Needs Approach pays more attention the insured’s beneficiaries and their needs in the event of the death of the primary breadwinner. The Needs Approach is aimed at evaluating and determining exactly how much money a family might need to continue living a comfortable lifestyle should the breadwinner die, become disabled or unable to work. It considers assets and a variety of additional sources of income such as Social Security, pension plans, investments and others which can reduce the face amount of insurance needed.
It’s a relatively comprehensive approach which also takes into consideration such variables as future college or higher education expenses.
Our insurance insider, Tony Steuer, CLU, LA, CPFFE puts it this way:
“Insuring human life value is the primary purpose of life insurance, and this method goes beyond numbers and figures,” Steuer says. “It considers the entire impact when a human life is lost.”
The key to determining the actual amount of coverage to purchase requires you to take the appropriate steps to secure the financial future of your loved ones and to do that, you should consider life insurance as a building block in that structure.
So where do you start? The best place to begin your search is educating yourself when it comes to the cost of various policies from a wide range of providers, and you can find the most useful tool to price life insurance policies here…
When the time comes for you to purchase life insurance, and the time is now, it’s not so much a question of how much you need, but how much money your family will need when you’re gone.
That calculation depends on two main variables; what will it take to meet your immediate obligations such as medical bills, funeral and estate costs, outstanding debt and mortgage commitments, and how much income will be needed going forward to sustain the comfort of your family and household? To come up with that number, you should calculate the “present value” of your cash-flow streams.