LIFE NEED ANALYSIS AND CONCEPT OF HUMAN LIFE VALUE

GROUP MEMBERS

AMIT JOSHIANIL KUMAR

AVDHESH RAJPUTNIKHIL GUPTA

NILESH KUMARRAHUL SOODEY

RISHAP KUNDRA

WHAT IS LIFE NEED ANALYSIS? By word “life need analysis” we convey

what actual amount would be needed to maintain the surviving dependants for the period they remain dependants.

It provides ample information to establish the most effective means for that potential loss.

Considerations: 1.Personal. 2.Property. 3.Liability.

WHY DO WE REQUIRE LIFE NEED ANALYSIS?

Needs Analysis can help determine the right amount of life insurance that is appropriate for

your needs.It explains the overall principals behind

estimating the costs associated with the death or disablement of an income earner and the provision of ongoing support for any dependants and/or the insured.

Cont.. Also outline the factors to consider in the

planning the amount of cover for short term disablement or illness.

Again it explains how the value of property assets should be estimated for insurance purposes and develop a comprehensive and integrated set of insurance policy options for the particular clients needs and circumstances.

METHODS OF CALCULATING INSURANCE NEEDS OF INDIVIDUALS…

1 HUMAN LIFE VALUE APPROACH.2 MULTIPLE APPROACH.3 NEED BASED APPROACH.

HUMAN LIFE VALUEConcept of HLV help us to arrive at a fairly estimated

insurance need for an individual who has to manage day to day maintenance, well being of all his dependants and also has to provide for financial securities in future to theses dependants in case of his premature death, through a life insurance cover

ONE of renowned professor S.S.HUEBNERDefines HLV as “HLV of any person can be measured

by capitalized value of that part of his income or income earning capacity devoted or meant for dependants arising out of economic forces incorporated within his being, like character, health education, training, experience and ambition”

Let's see this example for better understanding-

Age of 'X' : 40 yrsRetirement age : 60 yrsCurrent salary : 300000 per annum (expected to

remain same)Personal expenses : 125000Net contribution to family : 175000 (300000 -

125000 )Suppose 'X' dies at the age of 40.Income lost by the family : 175000 * 20 yrs (60 - 40)

* discount rate for 20 yrs (Present value factor): 1900000

HLV calculation methods adopted by ICICI Prudential Life :

• HLV based on :• Age

Retirement Age

Financial Assets (TA)

Liabilities (TL)

Cash Inflows

% of increase in Income Flow (Assuming Fixed Int Rate)

Existing SA (SA)

Addl SA = CPRO + TL - TA - SA

CPRO - Capital Required to protect life style

MetLife - HLV Calculator :• HLV based on :• Current Age

Anticipated age of retirement

Annual Income

Annual Increase

Tax Bracket/Rate

Monthly Expenses (Self)

Investment Return Rate

Current Life Insurance

Here's an example to understand this better. Let's calculate the HLV of Vivek, who is married and has a child. In the table all the information about Vivek, his family and their needs is provided. A couple of points from the table need to be explained in more detail.

PARTICULARS

VIVEKS AGE Years 30

AGE OF SPOUSE Years 27

LIFE EXPECTANCY OF SPOUSE Years 70

AGE OF CHILD Years 3

CHILDS SHARE OF MONTLY HOUSEOLD EXPENDITURE % 10

CHILD WILL REMAIN DEPENDANT TILL Years 22

Monthly household expenditure Rs 40000

Of the above, how much is spent on Vivek Rs 10000

Expected inflation in household expenditure % 5

Money to be set aside for child's education (in present value terms)

Rs 1,000,000

Money to be set aside for child's marriage/other needs (in present value terms)

Rs 750,000

Outstanding loans Rs 1,500,000

Other liabilities Rs 500,000

Medical expenditure/emergency fund Rs 500,000

Rate of return on low risk securities/deposits Rs 8

Human Life Value Rs 16,645,475

If the rate of return on low risk securities/deposits is 7

Revised Human Life Value Rs 18,183,996

To conclude, with respect to the concept of HLV, here are some key points –

One, HLV is a moving target and to make it meaningful, you must review it once a year. Rather than chasing the revised HLV year after year, the aim should be to get the broad trend right with the expectation that in the long-term, the actual and estimate will converge.

Two, do not get overawed by the HLV numbers thrown up. The `number' is just a starting point and must be put into the context of your present ability to set aside money.

Three, remain disciplined in the sense that at any point in time you should have planned in such a manner that in your absence, your family will not need to compromise on their yet-to-be fulfilled needs.

THANK YOU AND FURTHER QUERRIES ARE HEARTLY INVITED!!!!