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  • Human Life Value Approach versus Needs Approach
  • June 9, 2015
  • Differences between Human Life Value Approach, Needs ApproachBy Emily Miller

    Placing a monetary value on a human being’s life can be exceptionally difficult to both calculate and strategically figure out, as you are determining how much a person is worth.

    While it may come across as cold and uncaring, it is completely necessary to do and is something insurance companies have strategically figured out over the years. A person’s worth is figured out by using specifically devised mathematical formulations that determine a person’s future earning potential. This figure is then used to assess human life value for insurance purposes, especially life insurance.

    This is known as the Human Life Value Approach and is a way of deciding how much life insurance an individual may need. The person’s income, expenses and years remaining in the workplace are considered, as well as the depreciating value of the dollar.

    It was developed by Dr. Solomon S. Heubner in 1924 when he pointed out that the value of human life can be expressed as a dollar valuation; that is, determining the economic value of a person by discounting estimated future net earnings used for family purposes at a reasonable rate of interest.

    This approach is controversial because it does not factor in inflation, wage increases or improved standards of living. In fact, the Human Life Value Approach has been largely replaced by the more practical Needs Approach.

    With this approach, more attention is paid to the insured’s beneficiaries and their needs if something were to happen to the primary breadwinner.

    The Needs Approach evaluates and determines how much money the family will need to continue living in a comfortable lifestyle should the breadwinner die or become disabled and unable to work. Assets and other sources of incomes (Social Security, pension plans, investments, etc.) must be factored into this figure, as they can reduce the face amount of insurance needed.

    This approach also takes into consideration any future college or higher education expenses. Even though individual college institutions vary in costs and tuition, the cost of any college education overall has risen continuously and steadily. This makes setting aside funds for college essential for securing the well-being of one’s family.

    Regardless of which approach you take to determine the amount of coverage to purchase, you are taking the appropriate steps to securing the financial future of your loved ones by considering life insurance.

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