Human Life Value - Capital Needs Analysis

The Capital Needs Analysis method is used by most insurance agents, financial planners and at most financial-planning Web sites. Chartered Life Underwriters (CLU’s) know the method as the Human Life Value Concept or the Human Capitalization Method. These methods give you the income you will earn from your present age until retirement, assuming a rate of interest that represents salary increases through that period. These concepts are sometimes treated the same, and sometimes as differing methods.

According to this concept, an individual's net worth is the Present Value of that person's future income stream that will be allocated to others. Present Value tells you what your money will be worth in a given number of years while earning a specific rate of interest.

A variation of this method is used in wrongful death litigation to compute the present value of the decedent's anticipated future income, minus personal expenses, to compensate the survivors for lost net earnings.

Like the earnings-multiple method, the Capital Needs Analysis projects the income the insured will earn between now and retirement and discounts these flows. But Capital Needs Analysis goes further: it calculates the net contribution of the insured to the family's living standard by subtracting the insured's present value of future tax payments and living expenses from his or her present earnings. The net contribution is then compared with the pending needs of potential survivors, including mortgage payments, household expenses and special expenditures.


The Human Life Value Concept deals with human capital. Human capital is a person's income potential. We all have a human life value, and insuring human life value is the primary purpose of life insurance.

The Human Life Value Concept goes beyond numbers and considers the entire impact caused by the loss of a human being. Here are some questions to give you a start:

  • If you had been killed in a car accident last week, and someone else had been responsible for your death, how much money would your family sue the responsible party for?
  • If you had been killed in a car accident last week, and you had been responsible, how much money would you want your family to receive?
  • If you died of cancer last week, how much money would you want your family to receive?
  • How much are your tomorrows worth? What is your Potential Earning Power (PEP)?

    How much insurance is there on your life?