Human Life Value: What it is and How to Calculate?

Quick Overview

Human Life Value (HLV) in insurance is a method used to estimate how much life cover you need. It works by calculating the present value of your future income after adjusting for living expenses, existing liabilities, and inflation, so your dependents remain financially secure.

HLV measures the financial gap a family would face if the main earner passes away, helping ensure their income, lifestyle, and long-term security are protected.

Two people can earn the same annual salary and still need very different amounts of term life coverage. That’s because HLV depends on how many people rely on you, the loans you carry, your lifestyle costs, and the goals you’re funding.

This guide helps you understand how to calculate HLV and why it is important to consider it before purchasing any term policy.

Did You Know?

The idea of Human Life Value came from Dr Solomon S. Huebner in 1915. He said life insurance should protect a person’s future income, not put a price on their life. That’s why HLV is still used in insurance calculators today.

Human Life Value Formula

There are different ways to calculate HLV, but these three methods are the most commonly used:

1. Income Replacement Method (Present Value Approach)

What it Does: Estimates how much income your family would need until retirement, expressed in today’s money. All you need to do is estimate how much your family needs every year, adjust it for inflation, and convert it into today’s value, since money today can be invested.

How it Works:

Find your family’s share of income (income minus your personal expenses)
Choose a protection period (till retirement or till dependents are independent)
Assume an income growth (inflation) rate (e.g., 5%)
Assume a discount rate (what the lump sum could safely earn, e.g., 6%)
Calculate the present value of future income
Add loans and major goals, then subtract existing insurance (if any)

Example:

Income: ₹15,00,000
Family’s share: 75% (₹11,25,000/year)
Period: 25 years
Inflation: 5%, Discount: 6%
Required cover: ₹2.37 crore(Then adjust for loans and existing cover)

Ditto’s take: Do not subtract your investments meant for wealth creation. Term cover should be a last-resort safety net. You may subtract existing insurance if it runs for the same duration.

2) Need-Based Method

What it Does: Starts with what your family needs to live, then adds loans and major goals.

How it Works:

Start with monthly household expenses
Exclude EMIs if the loan principal is added separately
Decide how many years of support are needed
Inflate expenses (e.g., 5%) and discount to today (e.g., 6%)
Add loan amounts and big goals (education, retirement gap, etc.)
Subtract existing protection cover

Example:

Age: 30, Coverage till 70 (40 years)
Expenses: ₹50,000/month (₹6,00,000/year)
Inflation: 5%, Discount: 6%
Loan: ₹10 lakh
Required cover: ₹2 crore

Pro Tip: Always add big future goals separately. Otherwise, your cover may be too low.

3. Income Multiple (Thumb Rule) Method

This quick method multiplies your current income by a fixed number. Insurers usually use this rule to cap the total life insurance cover you can hold across all policies at about 10–30 times your annual income, depending on factors like your age, income, and more. Any existing personal life insurance you already have is deducted from this maximum eligible limit.

Formula: HLV = Annual Income × Income Multiple (10×–20× depending on age, job stability, and financial obligations)

Example:

Annual income: ₹10,00,000
Multiple: 10× to 15×

Cover range: ₹1 crore to ₹1.5 crore

Pros and Cons of the Three Methods

Method	Pros	Cons	Suitable For
Income Based	Easy to calculate and clearly focused on replacing lost income (commonly used and well-understood method).	Doesn’t factor in specific goals like children’s education or outstanding loans, and overlooks non-financial contributions to the family.	Salaried or self-employed earners who want a quick, income-based estimate and have relatively simple financial responsibilities.
Need Based	Tailors coverage to your family’s actual needs and future goals, making the estimate more realistic and practical.	Needs detailed inputs (expenses, inflation, loans, goals), so it takes more time and can feel complex to calculate.	People who want their life cover to reflect specific responsibilities like children’s education, home loans, and long-term living costs, rather than just income.
Income Multiple	Quick to apply and does not need complicated maths or detailed financial inputs.	Too simple because it ignores your real expenses, goals, and loans, it can easily result in over- or under-insurance.	People who want a rough, instant estimate of life cover and don’t want to get into detailed calculations right away.

Note: At Ditto, we use the expense and liabilities replacement method to estimate the term cover you require. To get a better understanding, use this online calculator to find the ideal cover for you.

How Does Ditto’s (need-based) Calculation Differ from Other Methods?

Inputs collected: Age, protection period, monthly expenses (excluding EMIs and investments), future goals like education or home purchase, and outstanding loans.
Expense-focused method: Future expenses are projected with inflation and combined with liabilities using the expense-replacement approach, usually shown with a 5% inflation example up to age 60.
Practical limits applied: Advisors account for insurer caps based on age, income, and education, and deduct any existing life cover to stay within eligibility limits.
Assets not deducted: Unlike many calculators, personal assets are not subtracted from the cover needed. Insurance protects against risk, while assets are meant for long-term wealth creation.

Disclaimer: While the tool on our website is comprehensive, it is still designed keeping an average person in mind. Once you connect with our advisors, at least 5–10 minutes of a 30-minute conversation is dedicated to this subject, with a full discussion tailored to your specific needs.

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Factors Affecting Human Life Value

Age: The younger you are, the higher your HLV usually is simply because you have more earning years ahead of you.
Income: The more your family depends on your salary, the higher your HLV needs to be.
Medical History: If you have health issues, insurers may limit how much coverage you can get or charge more, which affects your final HLV in practice.
Education: Higher qualifications often mean better long-term earning potential, so this can push your HLV up.
Job: High-risk professions (like mining, aviation, or offshore work) can reduce the coverage you’re eligible for or make it more expensive.
Lifestyle Habits: Smoking, heavy drinking, or adventure sports can raise premiums or cap your cover amount.

These factors can be divided into 2 buckets:

Family Needs Factors: Dependents, living costs, loans, future goals, and existing savings or cover decide how much protection your family actually needs.
Insurer Approval Factors: Health, smoking habits, and risky occupations affect premiums and the maximum cover an insurer is willing to offer, even if your ideal HLV is higher.

Importance and Drawbacks of Human Life Value In Insurance

Importance	Drawbacks
Helps estimate the right amount of life insurance cover based on future earning potential.	Focuses mainly on income and methods like income-based ignore specific goals like children’s education or marriage costs.
Ensures dependents can maintain their lifestyle if the insured is no longer around.	Assumes stable income growth, which may not suit freelancers or business owners.
Accounts for income, age, liabilities, and financial responsibilities in a structured way.	Does not fully capture non-financial contributions (e.g., a homemaker’s value).
Prevents under-insurance (too little cover) and over-insurance (unnecessarily high premiums).	Can become outdated as life circumstances change (marriage, loans, career shifts).
Acts as a starting point for financial planning and protection needs.	Depends heavily on assumptions about inflation, retirement age, and expenses, which can vary widely.

Why Choose Ditto for Term Insurance?

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Ditto’s Take on Human Life Value

Term insurance forms the foundation of your financial plan by protecting your dependents against the worst-case risk of early death. However, it should not replace your wealth creation strategy. Both are essential, but the right order is clear: secure term cover and emergency funds first, then focus on building long-term investments for growth.

Common mistakes or pitfalls to avoid while calculating HLV:

Don’t double-count liabilities. If you include outstanding loans separately, don’t add their EMIs again under monthly expenses.
Always factor in inflation. Ignoring it can make an adequate cover today fall short in the future.
Don’t depend only on thumb rules like 10×–15× of income. They are broad guidelines and may not align with your family’s actual financial needs.
Don’t assume high investment returns on the payout. Treat it as a safety net and base calculations on low-risk options such as FDs or government securities.

If you are looking for a term plan from insurers with established track records, we recommend comprehensive plans, which align with your long-term goals. Explore more about how our experts evaluate term plans through Ditto’s cut.

Frequently Asked Questions

How often should you review your term life insurance cover?

You should revisit your term cover at every major life stage, such as marriage, having a child, or taking big loans like a home loan, and whenever your lifestyle or income rises. Even without changes, review it at least once every 5 years to ensure your cover is still adequate.

What are the common reasons people underestimate or overestimate their required term insurance cover?

People often underestimate cover due to ignoring future expenses (children’s education, inflation), existing liabilities (loans), or assuming employer insurance is enough. Overestimation happens when income growth is projected unrealistically, dependents’ needs are overstated, or investment goals are mixed up with pure protection needs.

How to calculate Human Life Value?

To calculate your HLV value, you can use the Human Life Value calculator, which estimates how much life insurance cover you need by projecting your future income or expenses and adjusting for inflation, liabilities, and dependents.

Why do people often struggle to choose the right term insurance cover?

Many people pick round figures like ₹1 or ₹2 crore without considering inflation or the time value of money. They don’t realise how much that amount will shrink over 20–30 years. When a higher, realistic cover is suggested, the bigger premium can feel alarming, leading to hesitation instead of informed choices.

If I don’t have any dependents, do I still have an HLV?

Yes, you can still have an HLV even without dependents. Your HLV may reflect future financial responsibilities such as repaying loans, parental obligations in their old age, or leaving a legacy. However, if no one is financially dependent on you and you have no liabilities, your required life insurance cover may be low or even unnecessary for now.

Last updated on: 21 Feb, 2026