Life insurance is often equated with the death benefit alone and spoken of as something you "need" only if you have dependents. This is a limited understanding of permanent life insurance and its living benefits. Sadly, even many certified financial planners have a poor understanding of the potential power and uses of a properly-constructed life insurance policy.
Of course, life insurance isn't just for banks and corporations, even though banks and corporations put billions of dollars into life insurance for good financial reasons. Neither is life insurance just for parents with children or other dependents, even though insuring breadwinners provides an important protection for families. You also don't have to be a high net-worth individual wishing to transfer wealth to heirs in order to benefit from life insurance, even though it is often used by those who wish to protect gains, gifts and inheritances from avoidable taxes.
Many life insurance companies use various parameters to evaluate this, such as fifteen times your income or one times your net worth. Everyone has HLV, even if they are stay-at-home parents or retired volunteers living only on social security payments. You are important in this world, and HLV is only one way to measure that importance economically.
Insuring yourself for your full Human Life Value changes throughout your life. It is important for your family, but also for your own use. We also discuss how to use your life insurance death benefit (not just the cash) while you are living, to increase cash flow and make better use of the assets you have built along the way.
The needs-analysis approach, so often used in the life insurance industry, is mathematically incorrect. With car or home insurance, there is no assuming of various interest rates and inflation rates, nor attempting to perform a “needs analysis,” yet it’s done with life insurance all the time. Insurance is designed to indemnify or “make whole” something that is missing.
For example, if you drive a $50,000 car, you insure it for $50,000 — not what you “need” to insure it for, because you only “need” to drive a car worth maybe $20,000. You want the $50,000 car and you want to insure it for the full amount.
Properly understood, life insurance is a want. You don’t “need” life insurance, your family may need it, but you can use life insurance, especially since the triggering event is guaranteed. Because death is guaranteed, you know there will be a benefit from the insurance as long as it is in force when you die.
No other insurance works this way. No one wants a guarantee that they’ll use their car, home, liability, or even disability insurance. We’re sure no one wants a guarantee they’ll use their life insurance either, but if you knew it would be used, wouldn't you want it for the full amount?