Insurance Need Insurance companies require financial justification for the amount of coverage an applicant requests. Justification can come in many forms including, but not limited to, annual income, liabilities, net worth, potential estate taxes and business continuation needs. This is called establishing the insurance need and is done to prevent an over-insurance situation and protect the insurance company from fraudulent activities.
The most commonly used figure is the applicant's annual income. All companies have income multiple guidelines they use to evaluate the insurance need. If the applicant's request falls outside these guidelines, the company will turn to other financial information to help determine the need.
Below is one example of an insurance company's income multiple guidelines.
- Age 20-24 25x earned income
- Age 25-40 20x earned income
- Age 41-50 15x earned income
- Age 65+ 5x earned income
Non Working Spouse Insurance companies will insure non-working spouses, even though they may have no or little earned income. A non-working spouse may typically apply for the same amount of coverage the working spouse has, but both policies together cannot exceed the income guidelines listed above. The non-working spouse may not be insured for more than the working spouse.
