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# Life Insurance: V Philip

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Last Updated: Tue, Aug 21, 2012 00:52 hrs

I am 25 and am planning to buy a life cover. I am told that the extent of life insurance one needs depends on one's human life value (HLV). I would like to know what HLV means and why is it so important? How should I calculate my HLV?
Yes, you are right in considering that the extent of sum assured in life insurance is to be based on HLV. The concept of HLV is an attempt to quantify the 'replacement value' of a particular human life for your dependents in case of an unfortunate death. There can be different approaches to calculate the HLV of an individual.

However, HLV calculation is based on the calculation of the present value of the expected life time earnings of an individual, that is, the total income that an individual is expected to earn over the remainder of his working life, expressed in present rupee terms. Many insurers have HLV calculators on their websites or the same can be accessed from a life insurance agent.

With the service tax on insurance policies going up to 12 per cent, how will it be deducted from policies? Is it same from investments and pure life covers?

Service tax is calculated according to the rates announced by the government from time to time. In traditional plans like term or endowment plans, service tax is applied on the premium payable at the rate applicable when the premium payment is due on renewal premium or single premium. In case of Ulips, the service tax is deducted by way of cancellation of units. For example, the service tax rate, as on date, in Ulips (including cess) is 12.36 per cent, which is applied on the charges and not on the entire premium. While in traditional endowment plans the service tax (including cess) is 3.09 per cent for the first year, it is 1.545 per cent of the premium from the second year onwards.

My insurance agent told me that I can take a loan on my life insurance policy. Hence, I wanted to know if insurers are still giving out loans based on such policies. Also, taking loan on which financial instrument is more feasible and why?
Yes, loans are provided by insurers on certain plans when the policy acquires paid-up value, which is generally after three years and the loan amount is to the extent of the surrender value of the policy. Life insurance policies can be used as a collateral security for raising loans for some emergency funding that can be leveraged without losing the life cover. This mode is also cheaper than other personal loans as the interest is lower at 10 per cent.