How Much Term Life Insurance Can You Buy? (and how much do you need)

How much do term life insurance do I need? You've come to the right place. Our extensive guide will explain the max term life insurance premium and why term life insurance would work for you. Determining how much life insurance you need and how much life insurance you can buy are two different things. Consumers in their 50s could pay $45 per month for term life insurance, while those in their 30s could pay $26 per month. Continue reading to learn more about finding affordable term life insurance quotes now.

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Tim is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. He writes and creates stuff for QuickQuote and other insurance and financial websites. You can find him on Twitter.

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UPDATED: Sep 22, 2020

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As you’ve shopped for life insurance, you probably wondered, “How much term life do I need?” You may have tried an online life insurance calculator or asked Dave Ramsey or Reddit “How much term life insurance do I need?”

Read our extensive guide to learn the max life term insurance premium and give you more details on what you need to get the best term life insurance quotes.

To compare term life insruance quotes, enter your ZIP code in the FREE online tool above to compare insurance in your area.

You Must Qualify Financially

Congratulations! You’ve taken a big, first step toward getting a new policy. Now, you need life insurance quotes. But before you go and plug that magic number into a life insurance website, think about how much term life insurance you need.

You see, many life insurance shoppers believe they can buy any amount of coverage they want. Want $500,000? No problem. $5 million? You got it.

Only it doesn’t work that way.

“How much life insurance do I need?” You likely already know you have to qualify medically for life insurance through life insurance underwriting guidelines. The life insurance company will verify that you are in good health before issuing a policy to you, for obvious reasons.

What you may not realize is you have to qualify financially for life insurance as well. This is simple: the life insurance company is trying to prevent an excess coverage situation. The company needs to ensure that your total coverage amount doesn’t exceed your beneficiary’s economic loss if you die.

This is how they protect themselves financially and, in turn, can keep life insurance costs reasonable by lowering the term life insurance premium. Learn five ways to get a lower term life insurance premium in our other guides to get an idea of saving money on life insurance.

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Financial Justification Is All It Takes

Life insurance’s core purpose is to protect something: Your family, business, or estate are just a few examples. The policy’s death benefit is the amount of money the company pays your beneficiary if you die. That money can do many things, such as:

  • Replace your lost income
  • Pay off your mortgage
  • Pay your children’s college expenses
  • Pay your estate taxes
  • Keep your business going
  • Help a charitable cause

Your agent or company representative may use the word justification at some point.

This means the life insurance company wants you to justify the amount of coverage you want. What is your annual income? How much is your net worth? Remember, life insurance is meant to protect wealth.

These Financial Guidelines Will Help

Life insurance companies use a multiple of your annual income based on the amount of coverage you can buy. These multiples look something like this:

Life Insurance Rate Bands
Policy Amount$100K - $249K$250K - $499K$500K - $1M$1M+
Cost per Unit$0.49$0.45$0.40$0.37
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Remember, this is just a starting point. How much term life insurance coverage do I need? Well, the company will often consider other factors such as your net worth, asset portfolio, or business operations to determine if you can qualify for more than this baseline.

So if you are age 35 and make $50,000 a year, you should qualify for $1.25 million of total life insurance right off the bat. As in, that’s total combined with any other policies you already have and intend to keep.

It’s interesting to note that most life insurance companies will not ask for proof of income for smaller policies. Additional requirements like this usually kick in around $3 million and up. For these more comprehensive policies, you may be asked to provide additional financial information such as:

  • W-2 statements
  • Pay stubs
  • Financial questionnaire
  • Tax returns

According to the Internal Revenue Service (IRS), an employer can arrange to pay life insurance premiums for employees or adjust paychecks to pay for life insurance.

Non-Working Spouses Need Life Insurance, Too

And life insurance companies know the importance of this as well. So most have guidelines to provide life insurance for the non-working spouse if you don’t have an income of your own. These rules range from 50 percent of the spouse’s life insurance amount up to 100 percent.

There are usually limits on the maximum amount allowed for non-working spouses, with the most common being $1 million. However, some allow more. Genworth life insurance company allows a non-working spouse to buy a policy up to 100 percent of the income-earning spouse’s coverage to a maximum of million.

Start shopping for term life insurance using our FREE comparison tool. Just enter your ZIP code to begin.

Ready to compare quick life insurance quotes?

Your life insurance quotes are always free.

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Your life insurance quotes are always free.

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Know Your Number Before You Apply

How much term insurance should one take? When you decide to apply for term life insurance, have some idea of how much coverage you need for term life insurance. Then use the multipliers above to see if you can qualify based on annual income alone. If not, be prepared to justify the additional amount of coverage.

It’s not enough to throw numbers at the wall and see what sticks. Ask your agent to help you present your financial situation to the company in the best light possible.

How much life insurance does one need?

It doesn’t take algebra to determine your needs. It takes QuickQuote.

You may have heard you need the highest life insurance policy equal to 10 times your annual income. Or was it 20? The truth is, there’s no magical formula. There are all kinds of life insurance calculators out there, but each one’s likely to give you a different answer. But it’s not hard to figure out how much life insurance you need. It simply takes some guidance.

If you have an employer that manages your life insurance, you won’t have to worry too much.

How much group term life insurance do I need? Federal employees have life and term life insurance established for them through the Federal Employees’ Group Life Insurance Program (FEGLI).

Start With a Needs Analysis

The top reason people buy term life insurance is to replace income to protect their families. You may have other reasons, such as replacing your income, planning your business, or paying estate taxes. To get an idea of the amount of life insurance you need, consider the following formula offered by the LIFE Foundation:

(Immediate Obligations + Future Income) – Existing Resources = Life Insurance Need

  1. How much money will be needed to meet immediate obligations? This includes medical bills, funeral costs, estate taxes, personal loans, business debts, mortgages, college funds for children, etc.
  2. How much income is needed to support your family in the future? This includes the total annual income your family would need and how long they would need that income to last.
  3. What is the present value of your existing resources? Think savings, investment accounts, retirement accounts, spouses’ income, and existing life insurance.

Going through these questions will prevent you from buying coverage you don’t need and put you in a position to receive the maximum number of benefits for your life insurance policy.

How much term insurance should I buy?

You can buy term life insurance for 10, 15, 20, 25, or 30 years, but what’s the right amount of life insurance? To determine the recommended life insurance coverage, which is best for you, answer the following:

  • How many years until my youngest child is no longer dependent?
  • How many years until my mortgage is paid off?
  • How many years until my spouse and I retire?
  • How many years until my other long-term obligations are met?

Write down your answers. They might look something like this: 12 years, 22 years, 12 years, and two years. Use the largest number of years to select a policy for that time frame. A 25-year policy works best in our example. Another option is to layer multiple policies together to cover your needs. This approach could save you 25 percent or more on the cost of a single policy.

Frequently Asked Questions: How Much Term Life Insurance Do I Need

How much term life insurance do I really need? Hopefully, you now know the answer to this question, but just in case, feel free to check out some common questions below.

Are you ready to buy term life insurance? Start by comparing term life insurance rates online now by entering your ZIP code in the FREE quote tool below! Find the term life insurance company for you now.

#1 – How do you determine how much life insurance you need?

You can determine how much life insurance you need by looking at your annual salary and multiply by six to ten. Or you can calculate life insurance by multiplying the years you have until retirement.

#2 – What is the maximum life insurance coverage?

The max life insurance coverage is about 25 times your annual salary.

#3 – How much life insurance should a 50-year-old have?

People in their 50s often choose a 10, 15, or 20-year term life policy, which can cost around $45 per month.

#4 – Which is better, term or whole life insurance?

It depends on your needs. Watch a video that describes the difference between term life and whole life insurance.

#5 – What should I pay for term life insurance?

Term life insurance depends on your age. For a 30-year-old male policyholder they could pay approximately $26 per month for a 20-year policy. The life insurance coverage amount is about $500,000.

#6 – What type of life insurance is best?

According to Investopedia, the best overall life insurance is Prudential. As far as life insurance type, it would depend on the needs of the policyholder.

#7 – What is the Max Life Insurance claim ratio?

The Max Life Insurance claim ratio is 99.22 percent, which means the company pays out more claims.

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