As a parent, spouse, and employee, you have your own unique Human Life Value (HLV). While much of the value you bring into these relationships may not be financial, or even financially quantifiable, a life insurance policy allows you to monetize your human life value when you are no longer there in person. Obtaining life insurance allows you to put a number on your life.
The Human Life Value Approach
The Human Life Value approach refers to a way of determining how much life insurance you should buy. Generally, there is the “Needs Analysis” approach, and Human Life Value. We are strong proponents of Human Life Value because it allows people to identify the maximum amount of insurance they can get. The thing about insurance companies is that they won’t insure you for more than you’re worth, from a dollar amount standpoint (based on your income). In other words, insurance alone won’t make you rich, it only provides a sum related to your income.
The reason that this is so critical is because the Needs Analysis approach consistently convinces people to only buy the insurance they “need.” This typically means that the insurance is enough to cover all the expenses one can expect to have upon death. A car payment, a mortgage, funeral costs, maybe some college education for the kids. While these are all things that can be beneficial for a surviving spouse or other family members, why stop there? Why seek the minimum, when you could do so much more? What if your life insurance could provide your family with more options?
Your Human Life Value is a number unique to you, calculated roughly as your income multiplied by your years to retirement (using the typical age of 65). This means that the insurance you can get is likely much higher than you think it is, especially if you’re young. After all, it’s designed to replace the full income of your working years.
The best part of knowing your “HLV” is that you can take that number as a reference point. You may be able to get $2 million, and only have the cash flow for a $1 million whole life policy, and that’s okay! In fact, you can supplement that with convertible term insurance. Then, when you have the cash flow, go ahead and start converting term life to whole life.
Why is Human Life Value Important?
Why should you bother monetizing your life?
The Human Life Value approach is vital because it helps to protect the very thing that’s difficult to quantify: your life. In actuality, your life is priceless, and there’s no number you can place on the value you provide to the people in your life. However, if you were to pass away, that sentiment alone cannot support your family or loved ones. The reason people buy life insurance is that they love someone or they love something—and the death benefit is a gesture of that love.
The money from a life insurance policy can help families to:
- Take time off of work to grieve
- Continue to run a household
- Hire childcare for young children
- Cover funeral costs
- Provide income well into the future
- Save for the future
In other words, having a death benefit can really ease the strain on a family if the unthinkable occurs. The reason the Human Life Value approach is so important is that it gives you what you’re worth, not what your family “needs.” Because the thing about “needs” is that you can’t always anticipate them, and you often underestimate them. Not to mention, insurance is about replacing an asset. As we’ve identified, a human life is irreplaceable, yet why sell yourself short as a result? If you drove a $50,000 car, would you only insure it for $20,000 because technically, that’s all you need? Probably not. You’d want to get as close to the real value as possible.
Human Life Value: You Are Your Greatest Asset
So why would you want to monetize your Human Life Value? Why should life insurance be the solution? There are a few reasons to do this. First, you have to recognize that you are your greatest asset. Your knowledge, skills, and ability to make financial decisions are the very qualities that determine your Prosperity. You want to nurture those qualities as much as possible. Whole life insurance not only protects those abilities for your family, by creating a “certainty” net, it also gives you a pool of money to use while you’re alive.
This pool of money is known as your cash value, which is the savings component of a whole life insurance policy. You can use this money to invest, sponsor family retreats, support your family’s unique abilities, and even support your own growth and learning. In other words, you can literally monetize your value and benefit from it while you’re alive. And that money can be used for emergencies and opportunities, to support your family network, and to help you be better together.
In essence, by monetizing your Human Life Value, you’re creating opportunities in the present and the future to support your family. The money from your insurance policy has benefits while you’re alive, and while you’re not, that gives you and your loved ones options. Options to grow, learn, and invest, or options to create a life after you pass. That’s the power of whole life insurance.
The Hidden Asset of the Human Life Value
The group, Financial & Tax Fraud Education Associates, is a non-profit organization that operates a website (www.quatloos.com) devoted to exposing fraudulent business financial and taxation practices. In the middle of a commentary on the potential abuses in life settlements (agreements where a private investor buys an existing life insurance policy from the insured in exchange for becoming the beneficiary), are several interesting comments on the “hidden asset” of insurability.
“(W)ealthy people have a hidden asset, which is their insurability. The [homeless person] at the bus station can’t qualify for $5 million in life insurance, but many affluent and nearly affluent Americans can. Whether buying a lot of insurance makes financial sense for a person depends on a lot of factors, including their age, health, and what the internal rate of return will be. But when it does make sense, wealthy people should be taking advantage of their large insurable interest by purchasing as much life insurance as they can reasonably afford so as to either pay estate taxes or to further grow their estate (income tax free) for their children.
The author further states that monetizing one’s life is even worth borrowing for…
“If the wealthy people were really smart, they would simply buy as much life insurance as they could and hold it until their deaths. If they didn’t have the cash on hand to buy it, they could always use the services of many lenders who are willing to finance the premiums with the loans being paid out of the policy proceeds at death.”
Most people might not think of borrowing to obtain life insurance, but borrowing is certainly a monetization strategy, and for some people, the benefit of monetizing their human life value/insurability may outweigh the cost of borrowing.
Are You Ready to Monetize Your Greatest Asset?
Do you want to monetize YOUR Human Life Value? We’re ready to help you find your number, and get you on the road to building an emergency/opportunity fund with certainty! Book with us today, or email your questions to Welcome@ProsperityThinkers.com.