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What’s the Right Amount of Life Insurance? Understanding Human Life Value (HLV)

What’s the Right Amount of Life Insurance? Understanding Human Life Value (HLV)

March 01, 2024

When we talk about financial planning, insurance, or even estate management, one term that often comes up is "Human Life Value" (HLV). But what exactly is Human Life Value, and why is it important? In this blog post, we'll delve into the concept of Human Life Value, how it works, and why it holds significance in various aspects of life.


Understanding Human Life Value

Human Life Value is a financial concept that quantifies the economic value of an individual's life. It essentially calculates the present value of an individual's future earnings potential, taking into account factors such as age, income, education, and earning capacity over their remaining working years.

The basic premise of HLV[1] is that an individual's life has economic value, primarily based on their ability to generate income. This value can be calculated using various methods, including the discounted cash flow method, which factors in inflation and the time value of money to arrive at a present value figure.  Most insurance carriers will use an actuarial formula that utilizes age banded multipliers for the insured or applicant.  See example below:



How Does Human Life Value Work?

To calculate Human Life Value, several factors need to be considered:

  1.  Age and Gender: Younger individuals typically have higher Human Life Values since they have more years of potential earnings ahead of them. Additionally, gender can also play a role, as statistics show differences in earning potential between males and females.
  2. Income: A person's current income is a significant factor in determining their Human Life Value. Higher incomes usually result in higher values since they represent a greater earning capacity.
  3. Occupation and Education: The type of occupation and level of education also influence Human Life Value. Professions with higher earning potentials, such as doctors or engineers, typically result in higher values compared to lower-paying jobs.
  4. Health and Lifestyle: Factors such as overall health, lifestyle choices, and habits can impact Human Life Value. Individuals with healthier lifestyles may have higher values due to potentially longer life expectancies and lower risks of illness or disability.
  5. Inflation and Discount Rate:  Future earnings need to be adjusted for inflation and discounted to their present value using an appropriate discount rate, which reflects the time value of money.

 Why is Human Life Value Important?

  1. Financial Planning: Human Life Value is crucial in financial planning as it helps individuals and families determine the amount of life insurance coverage they need. By understanding the economic value of their lives, individuals can ensure that their loved ones are adequately protected financially in the event of their untimely death. During a time of grieving the last thing one should be concerned about are the financials.
  2. Risk Management: Human Life Value is also important for businesses and organizations in assessing risk. Employers may use HLV to determine the appropriate level of employee benefits, such as life and disability insurance, to provide to their workforce.
  3. Estate Planning: When it comes to estate planning, Human Life Value can help individuals estimate the value of their estate and plan for the distribution of assets to beneficiaries in a tax-efficient manner. Based on current IRS Tax Code(s), death benefit proceeds from personal life insurance are tax-free!
  4. Investment Decisions: For investors, understanding Human Life Value can influence investment decisions, especially when it comes to long-term financial goals such as retirement planning. By considering their HLV, individuals can make informed decisions about saving and investing to meet their future financial needs. The goal(s) we set today while living should remain intact.


In conclusion

Human Life Value is a critical concept in personal finance that quantifies the economic value of an individual's life based on their earning potential. By understanding HLV, individuals can make informed decisions about insurance coverage, preparation for both retirement, life event goals, i.e., college planning, and investment strategies, ultimately ensuring financial security for themselves and their loved ones.  As a financial planner my goal is to make sure the my clients have the right amount of coverage that aligns with their goal(s) to make sure their loved ones can remain in their homes, children continue to remain in the same community and schools, and that the surviving spouse isn’t forced to become a part-time parent due to needing more household income to sustain their desired lifestyle. 

If you’re unsure about the current amount of life insurance coverage you have today feel free to contact me at or get an obligation free quote here!


[1]The HLV Theory states that one should maintain life insurance equal to the present value of their expected future earnings. Life insurance companies place limits on life insurance available to consumers based upon this formula and have created age-based multiples of current income as a guideline. For example, a person in their 30s may be insured for around 30 times their annual income, 20 times for a person in their 40s and 10 times for people in their 50s. Age 60 and over about 1 times net worth.

[2] Note that in recognition of their indirect but important financial contribution, general guidelines allow a nonworking spouse to be eligible for up to 50% of the HLV limit of the working spouse. This image is from The Living Balance Sheet.



Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.

Financial Advisor and Registered Representative of Park Avenue Securities LLC (PAS). OSJ: 6115 Park South Drive, Suite 200, Charlotte, NC 28210. Securities products and advisory services offered through PAS, member FINRA, SIPC.  Financial Representative of The Guardian Life Insurance Company of America®(Guardian), New York, NY. Park Avenue Securities is a wholly owned subsidiary of Guardian. Consolidated Planning, Inc. is not an affiliate or subsidiary of PAS or Guardian. CA insurance license # 0M50974. Guardian and PAS do not offer student loans to finance education nor do they offer legal to tax advice.