Revisiting the Human Life Value Concept

This concept uses a mathematical approach to determine the amount of life insurance a household income earner needs to adequately protect their family.

By Ike S. Trotter, CLU, ChFC, RICP, AEP

As we participate in the Life Insurance Awareness campaign this September, it is important to revisit the concept of Human Life Value, which recognizes the “dollar value” of one’s lifetime contributions to his or her family. As an insurance agent, you can use this concept to help your prospects determine how much life insurance they need to adequately protect their families and loved ones.

It is widely known that Americans need more life insurance. Survey after survey of American households backs up this fact. For instance, according to a MetLife study released a few years ago, 39% of Americans had no form of life insurance at all. And even those with life insurance had enough coverage to provide for only 2.1 times the annual income of a loved one.

Two-thirds of surviving spouses describe this shortage as having a “major” or “devastating” impact on their families’ financial well-being. Even five years after a loss, 42% of surviving spouses said their financial situation was dire and growing worse.

The Human Life Value Concept

Recently, while straightening up bookcases in my office, I found some textbooks authored by Solomon Huebner, Ph. D. Dr. Huebner created the concept of Human Life Value, which he taught extensively during the first half of the 20th century.

What’s more important in life for a family than to protect the person who brings bread to the table?

Through his teachings, Dr. Huebner pioneered the dialogue about responsible economic protection as a key component of one’s overall financial well-being. His ideas were considered quite innovative for his time in bringing mathematical recognition of the “dollar value” of one’s lifetime contributions to his or her family.

Over the years, many of his concepts have been applied to American life. One key example is the judicial system, which recognized the Human Life Value approach as an appropriate means of measuring the overall economic value — especially in settlements concerning wrongful death lawsuits.

The concept behind Human Life Value is that insuring someone’s life is similar to insuring other forms of “tangible” assets. For example, your home is normally insured for its replacement value. Should it be destroyed by a fire, a natural disaster or any other covered event, you would expect the home to be re-built to its condition prior to the loss.

Similarly, human life value emphasizes the insurance of one’s life for its replacement value, fully recognizing that the primary purpose of life insurance is to adequately protect a family from the economic loss suffered by the death of a breadwinner.

Human Life Value uses a mathematical approach in determining one’s actual financial contribution to a family. It starts by multiplying one’s annual income (or if one is self-employed, one’s expected earnings) by the number of expected working years to retirement. This value is then added to the cost of fringe benefits that may be provided by an employer.

Next, you add the estimated costs of services one performs around the house, such as cleaning, cooking, housework and mowing the lawn. The last part of this mathematical process subtracts the cost of personal consumption as well as taxes to be paid. And, with all financial estimates involving a given number of years, you factor into this equation what financial analysts call the “time value of money.”

From this, we can see that a 40-year-old person earning $50,000 per year would have a potential Human Life Value of close to $1.2 million over his lifetime of working. Even taking into consideration the time value of money, this person’s family would need to be protected for at least $600,000 in order for him to be adequately insured for the potential loss of his income.

It has been said that a life insurance purchase is made for those you love or for those you owe. In persuading your prospects to buy life insurance, let them know that purchasing the proper amount of protection should be more than shopping for the cheapest coverage for the shortest duration of time. On the contrary, the purchase of adequate life insurance is one of the most important financial decisions a family will ever make.

As Dr. Huebner would ask: What’s more important in life for a family than to protect the person who brings bread to the table?

Information provided in this article is general in nature and not intended as specific financial advice.

Ike S. Trotter, CLU, ChFC, RICP, AEP, is a well-recognized career professional and a 45-year member of NAIFA. He operates his own planning and risk management firm, IKE TROTTER AGENCY, LLC, in Greenville, MS.