Modelling the life insurance needs using the human life value revision method

Abstract

There are numerous methods to determine the appropriate amount of life insurance a person needs – it can be scientific or simplistic. Many life insurance agents and financial advisors simply rely on traditional rules of thumb using the multiple of income method. The more scientific methods are the needs analysis and the human life value. The needs analysis is regarded as the most commonly used sales tool and the human life value is the most agreed academic expression for the purpose of life insurance. However, there are several weaknesses of using both methods. By using needs analysis as a sales tool, the recommendation amount of life insurance would leave a person underinsured. Similar goes to the human life value method. Nevertheless, both methods can be improved with a few revisions. The post-death needs under the needs analysis must be revised to incorporate the reality that the family's standard of living changes over time. The projection of a changing standard of living is a part of human life value analysis. Therefore, this research looked into both methods and combines both concept of needs analysis and human life value to create a powerful methodology that provide adequate life insurance protection – a method we name it as 'the Human Life Value Revision Method'.