Why You Want Insurance Part 2: It Protects Your Human Life Value
Insurance is about more than protecting your stuff. It’s about protecting your human life value.
Often, your life insurance needs rank pretty close on the motivation list with you need to change the oil in your car.
Here’s the filtering mechanism your brain goes through when you hear it: Not that pressing. Things are going fine without it. Why be inconvenienced to handle this non-urgent matter? Not that relevant. Out of sight, out of mind. Dismiss.
But what if I told you that the reason to change your oil in your car was not about your car at all? Changing your oil protects you, your peace of mind, and your ability to create value.
Table of contents
- Where Insurance Fits in Your Personal Economy
- Last Time
- Reasons You Want Insurance
- #4) You Are Worth Protecting
- #5) Peace of Mind Allows You to Produce More
- #6) Protection Builds a Solid Foundation in Your Personal Economy
- #7) Insurance Ensures No One Life Event Can Make You Poor
- In Conclusion
- Take Action to Protect Your HLV
- Here’s What You Can Expect Next
- The Whole Series on Insurance Protection
- Create Your Time and Money Freedom
Where Insurance Fits in Your Personal Economy
Let’s zoom out for a moment to remember where and why life insurance policies fit into your Cash Flow System.
Your foundation starts with keeping more of the money you make. Second, you protect what you’ve built. Finally, you increase your income to create time and money freedom and expand your legacy.
A Life insurance policy fits in the protection stage. With it, your livelihood is no longer at risk, but secure, regardless of the life circumstances you face.
Your protection is like a roof on your financial house. When the shingles are sufficient and cover the whole house, it keeps storms outside your house, preventing them from getting inside and destroying your belongings. Similarly, when you have adequate insurance protection, your income and assets you’ve built are safe from financial storms that may occur in your life.
Without changing your oil, you run the risk of thousands of dollars of irreparable damage that can be done when a car runs out of oil. Your nightmare of needing to replace a car fast is now upon you. While buying a new car should be fun and exciting, you now have to spend hours searching for the right vehicle just to bring your life back into equilibrium and normalcy. Basic transportation in your everyday life that was easy before now becomes a complicated algorithm of managing other people’s availabilities to find out how they can help you get from point A to point B.
This seemingly menial task of preventative maintenance is now all-important. It’s not really about the car, but about protecting your peace of mind, and saving yourself the worry and frustration.
Similarly, insurance is about more than just protecting your stuff. It’s about protecting you.
In Why You Want Insurance Part 1 – Insurance Transfers Risk, we covered the first three of 11 reasons why you want insurance and discussed what insurance does.
When you don’t feel like you need insurance is the best time to secure it because when you do need it, you’ll wish you had as much as you could get.
Reasons You Want Insurance
#4) You Are Worth Protecting
Have you ever asked yourself, what is the most important thing that I have?
Money? It could vanish tomorrow. Health? Time? Relationships? Happiness? Purpose? You’re getting closer.
Your most valuable asset is you.
You are the source of everything you create. You are the producer of all of your other assets: your home, bank accounts, income, business, real estate, your cash flow.
I know we’re getting all deep and metaphysical here, but stay with me.
Your money, house, cars, family, job, time, and talents mean nothing without you in them. In fact, they wouldn’t exist without your creative capacity.
Without you, your story is unwritten, your knowledge undiscovered, your ideas uncreated, and your loved ones uncherished. Your relationships, your work, your artistry and mastery in any capacity would be nothing without your ability to bring them to life.
You, the creator of your life, are more valuable than everything you’ve created with your life. You are worth more than your things.
Therefore, you are your own greatest asset.
What is Human Life Value (HLV)?
Did you know there is a price on your life?
In life insurance, your human capital (earnings potential) is called human life value. If your life were cut short, it is the dollar value of your economic impact, in terms of what you create for the people who depend on you, that was interrupted by you not living your full lifespan to create it. It is similar to the monetary value used in a court of law to determine the award in a wrongful death suit.
Here’s what it means in tangible terms. You earn an income. That income is your livelihood, and in most cases, also the livelihood of your spouse and the people who love and depend on you. Your income provides for family needs: home, food, and experiences to your family and children, and perhaps even gives an opportunity to others through charitable donations.
This number could also be called your lifetime income potential (future earnings). This dollar value is how much it would take to create the financial resources you would have accumulated, had you lived out your full lifespan, and replace them if you didn’t have that opportunity.
How is Human Life Value Calculated For Life Insurance?
Life insurance companies limits the life insurance amount (death benefit) they will sell you. You can estimate how much life insurance an insurance company will sell you, by multiplying your current annual income (not including salary increases, and employment benefits), times the number of working years you have before retirement age. A great resource for calculating life insurance needs is this human life value calculator here.
For example, Adrian is 30 years old and makes $100,000 per year. His income provides his family’s ability to live in a specific neighborhood, attend private school, drive a new car, eat an organic diet, and vacation in Florida each year. His human life value is the money required today to continue providing what his family would need if he died and couldn’t create it himself. For him, the calculation works out to just over $4 Million.
This number is close to the maximum amount of life insurance you can get. The life insurance company will never over-insure you. They’ll insure up to your maximum economic value, based on your income and assets today.
Human Life Value Represents Your Ability to Produce
Your human life value calculation is derived from the dollars you earn today. Let’s look deeper at the source of your value.
Because dollars follow value, your earnings are a result of your contribution to the world.
Imagine your financial life were a tree.
Your lifestyle, house, cars, and net worth would be the visible, beautiful crown of leaves.
The branches would then be the income you earn to produce that lifestyle.
Next, the trunk would be the value you provide to others that supports and creates the income.
And finally, your productive capacity would be the root system.
Production -> Value -> Income -> Lifestyle
The source and cause of your human life value is your ability to produce. And your production potential is determined by your mindset and creativity.
As with a tree, the most important part of your financial life is the root.
If the roots are secure, nourished and cared for, the rest of the tree will thrive.
Therefore, the most important thing you can protect is your mindset, creativity, and ability to produce, as the engine of your human life value.
Insurance Protects Your Ability to Produce
Insurance protects your ability to continue providing your best version of you to give your greatest contribution.
Instead of using your mental energy and time solving lower-level problems like survival, it transfers those issues through insurance, freeing up your resources to produce at your highest potential. Insurance ensures you won’t have to spend your financial resources replacing a damaged car, home, or paying for an illness, or a legal battle. Your auto, homeowners, liability, health, life, and disability insurance protect your human life value because having them ensures that your mind can run at peak performance when it’s not tied up solving potential problems.
More importantly than protecting your stuff, the greatest function of all types of insurance is that they protect your peace of mind and your ability to produce.
Most people focus on insuring assets they’ve produced, but neglect to insure the origin and creator of those assets.
It’s far more important to protect your production potential that to protect your stuff. Stuff is replaceable. But the only thing that will replace it is you, the producer.
The reason many people don’t value insurance is that they do not value themselves highly enough. Owning your role as a producer allows you to comprehend your value and regard yourself as a treasure worth protecting.
#5) Peace of Mind Allows You to Produce More
While your human life value may be shockingly higher than you would have expected, it is still limited in scope.
How Is Human Life Value Calculated?
Human life value is calculated based on what you have produced up to this point: today’s income and assets. It anticipates that you’ll continue earning the same amount each year, adjusted for inflation and cost of living.
Expanding Human Life Value
However, you are an unlimited being with infinite potential. Your current earnings do not adequately represent everything you can create.
You have an unlimited capacity to bring in income because you have an unlimited ability to produce value for others. How well you actualize your potential depends on what lessons you learn and what skills you build along the way. As you develop your ability to provide value to others, you’ll have breakthroughs where your future income won’t be linear, but instead, exponential.
Today’s human life value calculation cannot predict how you’ll develop beyond your current state. It cannot account for the value creation and earnings that you produce as a result of scaling your business and expanding beyond your current capacity.
Your Mindset Determines What You Produce
You’re more creative and productive when your mindset is abundant, relaxed, confident, and certain. Instead of just maintaining your production, you expand your capability to produce when you have certainty and peace of mind, knowing that everything will be taken care of.
It’s like the safety net in a circus tent. Beneath the acrobats swinging on the trapeze and balancing unicycles on tightropes, there is a net to catch them when they fall. The security of knowing they will not plummet to certain death below gives them the confidence and ability to perform amazing feats and test human capabilities.
Les McGuire wrote a piece on the Economic Value of Certainty, where he describes the financial benefit of confidence assurance, and guarantees in your life. On the other hand, risk causes fear, doubt, and worry to limit our production. It’s less risk, not more, that allows you to create more wealth.
To live up to our full potential, we need to have an abundant, productive mindset. Insurance is like abundance insurance, protecting your mindset.
Your highest potential creates the most value for others, opening the opportunity for income to flow into your life. That resulting income is then used to calculate your human life value.
Protecting your peace of mind allows you to get more enjoyment out of what you already have, enables you to function at your optimal capacity, and increase your income as a result.
Peace of Mind -> Ability to Produce -> Create Value for Others -> Resulting Dollars -> Determine Human Life Value
Your Human Life Value Never Ends
The other fallacy in human life value is that it assumes that your earning years will end in retirement, and at that point, you’ll no longer have an economic value.
However, in the later years of your life, you’ll have developed your best self, acquired your greatest knowledge and skill, and are even more equipped to contribute value and earn a resulting income.
There is never a time in your life that you do not have human life value. Your production capability extends throughout your entire life, and even beyond when you create something bigger than yourself.
#6) Protection Builds a Solid Foundation in Your Personal Economy
Protection is the bedrock of a strong and resilient life.
Just like a tree, a building’s strength lies in its foundation. The foundation supports everything else you build on top. With a weak foundation, everything you build is unstable and uncertain.
Up to this point, we’ve been discussing insurance protection, but protection is much bigger than insurance.
Protection includes any routines you practice that focus your mind to maximize your creative energy. For me, this is a daily power hour, with a devotional, reading my Bible, reading and listening to podcasts that expand my thinking, prayer, meditation, and running. It’s my time to clear the mental clutter, refocus on what matters, and care for my body that reignites my mind to do its best work. For you, that may be anything that refreshes and protects your mind, body, and spirit to expand your capacity.
Protection includes robust savings as an Emergency/Opportunity Fund.
Personal and business legal planning are a part of this foundation of protection. An estate plan protects your wishes for the things that matter most to you, like your children, your money, and your health. Business legal agreements and entity formation separate you from your business and establish a plan to minimize your legal liability.
Insurance is another brick in your protection foundation.
#7) Insurance Ensures No One Life Event Can Make You Poor
To think of it another way, protection is the roof of your financial house.
Inside your house are your assets, liabilities, and cash flow. The purpose of the roof is to deflect storms from penetrating into the house and damaging the contents inside.
The shingles making up the roof include auto insurance, homeowners’ insurance, liability insurance, health insurance, disability insurance, long-term care, life insurance, and estate planning.
Without insurance products or sufficient coverage in these areas, you are financially vulnerable to life events. You run the risk of having a car accident, house fire, disability, lawsuit, or medical emergency come through the roof and damage your financial house by requiring you to pay on your own. This can deplete assets, increase loans or credit card debt if you can’t pay, and can constrict your monthly cash flow.
Instead, when you’re fully insured, your roof of protection prohibits these financial storms from robbing your cash flow and savings. The insurance company indemnifies the harm or loss, taking on the financial responsibility, and leaving your assets and cash flow intact.
With protection, you can guarantee that what you want to happen, will happen, regardless of circumstances.
All insurance, regardless of the type of coverage, has one mission: to protect your one greatest asset.
The point of insuring property value is to ensure that we can utilize our HLV as completely and effectively as possible. It’s so we can live life focusing on and planning for production instead of recovery from property value loss. – Garrett Gunderson, Killing Sacred Cows
Take Action to Protect Your HLV
Have you used the wrong measuring stick to decide whether life insurance is worth it to you? How do you see your worth differently? Have you considered that you are your greatest asset? How can you increase your protection to increase your production?
Calculate your own Human Life Value, and life insurance needs. Do the results surprise you?
Share your thoughts in the comments below.
Here’s What You Can Expect Next
In Why You Want Insurance, Part 3 – It Costs More to Self-Insure, we’ll discuss the cost of insurance, whether the cost is worth it, and how to prioritize paying for protection.
The Whole Series on Insurance Protection
Check out the rest of the articles, podcasts, and videos in the series on insurance protection here:
- Why You Want Insurance – Part 1: Insurance Transfers Risk
- Why You Want Insurance – Part 2: It Protects Your Human Life Value
- Why You Want Insurance – Part 3: It Costs More to Self-Insure
- How to Shop for Insurance – Part 1: 7 Tips to Save on Insurance
- How to Shop for Insurance – Part 2: Home and Auto Insurance
- How to Shop for Insurance – Part 3: Life, Health, and Disability Insurance
Create Your Time and Money Freedom
Book a strategy call to find out the one thing you should be doing today to optimize your personal economy and accelerate time and money freedom.
It can often seem that there’s a tradeoff between money and relationships, that you get one only at the expense of the other. But if you want to succeed in both critical life categories—you want thriving relationships you feel great about, and to live at the peak of your financial performance, you need wisdom that’s…Read More
Did you know there’s a secret hiding in plain sight that average rates of return will never tell you? In this episode, we’ll discuss Sequence of Returns and the risk they pose to your future income. Then, we’ll show you exactly how to minimize the risk. So if you want to get predictable income from…Read More