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?
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.