Is it possible to put a value or a price on human life?  Strange as it may sound, that is exactly what underwriters and insurance companies attempt to do when they are qualifying an applicant for a life insurance policy.

One of the first considerations an insurance company will make when evaluating a new customer is whether the amount of insurance being applied for is consistent with the net worth of the individual. These underwriters need to do what can sound a bit inhuman, but the calculation of “human life value” is used by life insurance companies to determine the maximum amount of insurance that they can offer you.

How does the calculation work?  The “life value” is based either on the financial assets of the insured, or the  earning potential, typically whichever is greater.  An asset calculation is pretty straight forward, as the insurance company will generally insure you for the same amount of  total financial assets you possess with no questions asked.  Earning potential gets a  bit more complicated but the conventional guidelines are to follow an Age Income Multiplier.

Here’s the basic formula:

Age 20-35 30x
Age 36-40 20x
Age 41-45 14x

Age 46-50 12x
Age 51-59 10x
Age 60-65 7x 66+ 5x

There is one more factor to figure in to determine the total amount of life insurance a company can offer you. That is your income. Depending on your income earnings, many insurers will only allow you to pay a certain amount of your income towards insurance.

For example,  if you make less than $80,000 you are only allowed to contribute up to 5% of your income to life insurance. If you make between $80,000 and $120,000 it goes up to 8%, between $120,000 and $250,000 it’s 10% and over $250,000 is decided on an individual basis. If you want to maximize your human life value then you would get the most insurance you could.

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