Page 34 - Life Insurance underwriting Ebook IC 22

 After tax earnings
 Expected number of years the income will be earned (remainder of working life)
 Annual estimated increase in income (salary rise)
 A discount factor for future earnings (risk free rate like the PPF rate)

2 Methods of calculating HLV (Human-Life-Value)

i. Methods of calculating HLV
ii. Income replacement method
iii. Needs analysis method
iv. Income multiple method

2.2 Needs analysis method

i. It provides benefit in the period immediately following the death of the insured to
offset additional expenses.
ii. It supports the normal living expenses of the dependents.
iii. It provides long term income for the retired surviving spouse.
iv. It takes into account the financial liabilities (home-loan and other loans) and
financial responsibilities (children’s education and marriage) of the individual.
v. The insurance amount should cover Arun's financial responsibilities like his
family's monthly expenses, his daughter's future development costs (school fees,
higher education, marriage etc.), the family's retirement expenses etc
vi. The insurance amount should also cover Arun's financial liabilities like home-
loan and other loans, if any.

2.3 Multiple of salary

This by far is the simplest of the three methods of arriving at the insurance cover
amount that an individual should take. In this method, the maximum amount of
insurance cover is determined as a multiple of salary. This multiple will depend on the
age of the life to be insured and his salary. This approach assumes that the life insured
is the only bread winner of the family and the family can in e adequately on some
percentage of the insured's income.

The advantages are:

 Easy to use
 Useful in simple sales situation

The disadvantages are that it does not take into account:

 the age of the surviving spouse

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