Why Do I Need an Income Protection Insurance |
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About Human Life Value
People know everything come with a price, but do you know that every human has his own price tag as well? This may sound a bit weird to the man on the street. Human life is in nature, invaluable. How can you put a price tag on somebody's life? You definitely cannot. But it is actually the individual's earning capability that differentiate among us. That earning capability determines what your Human Life Value (HLV) is.
HLV can be computed based on the following details:
In a simple context, HLV = (retirement age - current age) x annual income If you are earning $50,000 per annum at your current age of 25 years old, then your HLV is $2,000,000 if you plan to retire at age 65.
Why Do I Need an Income Protection Insurance?
The above information on HLV may have given you some hints why do you need an income protection insurance. HLV is actually the present value of your future earnings. In the event of premature death, the loss of income to your household is $2,000,000. Let's put aside the emotional loss, the biggest concern for the family may be how they are going to move on with sudden loss of the source of family income. This is the area where you really need to cover when you buy an insurance.
Besides, the risk of income loss is not limited to premature death. Disablement and dread diseases may also cost you the future income. The extensions of coverage should be taken into consideration as well, as both of them are equally destructive.
In real life, calculation of income protection insurance needs may be more complicated, as it may also include some other factors like inflation, pay increment, your net worth status etc before the final amount you need to insure is derived.
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