Q: What is the maximum amount of term life insurance I can purchase?
A: There really is no definitive answer to this question. Most 'major' life insurance companies will consider virtually any amount requested by an applicant. Many give a range of $60M - $75M, with amounts above that subject to special arrangements with other insurance companies. That means some companies are willing to consider larger amounts of coverage if they are able to get other insurance companies to share the risk with them.
Remember, this does not mean that an applicant can simply request any amount of coverage he/she desires. All term life insurance applications are reviewed for financial justification of the amount of coverage requested. There are several factors used in this review, including annual income, household income, existing life insurance coverage in force and net worth among others. The following chart shows typical income replacement guidelines used by many life insurance companies.
Age | Factor |
20-25 | 25x |
26-40 | 20x |
41-50 | 15x |
51-65 | 10x |
66-70 | 5x |
71+ | Individual Consideration |
For example, if you are 35 years of age and wish to apply for $1,000,000 of term life insurance, you would need to have an income of at least $50,000 to qualify. Keep in mind there are other factors involved. This is just a very basic example.
One common misconception about coverage amount is that an applicant can apply for any amount of coverage he/she wishes. Perhaps we will devote our next blog to discussing why this isn't the case.
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