According to the U.S. Department of Labor, the number of working women in the U.S. increased from 30 million in 1970 to more than 65 million today. But what part of women’s economic value is protected against losses their families might suffer upon a death? The answers appear to be that only a small part of women’s overall economic value—as workers, wives and mothers— is protected. 
Calculating Your Value
In calculating an adequate amount of life insurance, many people use a “multiple of earnings” method. For example, a woman earning $40,000 per year might calculate that she needs coverage equal to eight times her salary, $320,000. While this method is simple, it has shortcomings if multiples are too low. For example, it doesn’t measure non-wage value, and it also ignores potential wage increases.
A better way to determine coverage amounts is called “Human Life Value.” This is the same method that courts typically use to award judgments in wrongful death lawsuits. While Human Life Value can be more complex to calculate than “multiple of earnings,” it is considered a more accurate estimate of your real value.
Human Life Value: An Example
Human Life Value is defined as the present value of all future income that you could expect to earn for your family’s benefit, plus other value you expect to contribute, less taxes and personal consumption through your planned retirement date. The example below illustrates.
“April” is age 35 and plans to retire at age 55. She currently earns a salary of $50,000, of which 20% goes for her own personal living expenses and the other 80% for her family. Also, she provides an additional $15,000 per year of non-wage value to her family. (Think of this as the cost to hire a skilled domestic worker to perform her duties.) April’s total value to her family at age 35 is calculated as follows:
| 80% of her $50,000 salary | $40,000 |
| Non-wage value | $15,000 |
| Her total value at age 35 | $55,000 |
The next step is to increase this $55,000 for inflation over the next 20 years, until she plans to retire. At a 3% rate of annual growth, her value would increase to $99,336 by age 55. The final step is to apply a “discount rate” to each year’s projected total value, accounting for the time value of money. For example, at a discount rate of 4%, the total present value of April’s projected value through age 55 is just over $1 million. That is the amount of life insurance protection her family needs to adequately insure against her death.
You can double-check the Human Life Value calculation by applying a simple underwriting guideline, such as those life insurance companies frequently use to suggest proper amounts of coverage. Here is a common guideline:
| Age | Multiple of Salary |
| 25 | 25 |
| 35 | 20 |
| 45 | 15 |
| 55 | 10 |
Based on the example above, April’s salary of $50,000 would require coverage of $1,000,000 (20 times her salary). This supports results obtained in the Human Life Value Calculation.
Regardless of the calculation method used, it is prudent to have your life insurance coverage professionally reviewed and evaluated. This will help to determine your Human Life Value and assess whether additional coverage is needed to replace your real value.
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Good post. When I got my life insurance I just figured the amount needed to be able to live off the interest without touching the principal. Life insurance policies can also double as part of a retirement plan and the younger you start the less it costs to accumulate a tidy sum to retire on.