How Much Term Life Insurance Can You Buy?
How much term life insurance you can buy depends on how much money you earn and the total amount of coverage you need to protect your family after your passing. If qualified, you may be eligible to buy enough term life insurance benefit to cover up to 25 times your annual salary. Determine how much term life insurance you want to buy with our guide below and start comparing life insurance quotes for free.
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UPDATED: Oct 31, 2020
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With countless term life insurance policies to choose from, many questions arise. How much term life insurance can you buy? How much life insurance do I need? Should I get 20 or 30-year term life insurance?
We understand that shopping for term life insurance quotes might be confusing. This guide will help you find how much life insurance you can buy, how much life insurance you need, and how to get the best term life insurance policy for your needs.
Additionally, you will learn about the max life insurance claim ratio. Even better, you can compare term life insurance rates in your area with our FREE quote tool above in just a few short minutes.
How much term life insurance do I qualify for?
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. It’s not a question of how much life insurance you can buy at once, or in a day, a month, or even a year.
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. Take a look at these five ways to get a lower term life insurance premium to get an idea of how you can start saving money on life insurance.
How much life insurance can I get?
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.
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.
How much term life insurance should I buy? Remember that your life insurance needs don’t necessarily determine how much you can buy. Most life insurance companies will allow you to get a maximum of 25 times your annual income.
What is the most term life insurance I can buy? Below are some examples of what 25x your salary could be if you qualify.
|Annual Salary||Term Life Maximum|
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.
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Term Life Insurance Financial Guidelines
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:
|Policy Amount||$100K - $249K||$250K - $499K||$500K - $1M||$1M+|
|Cost per Unit||$0.49||$0.45||$0.40||$0.37|
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.
How much life insurance should you carry?
What is the ideal amount of life insurance coverage? You can get a rough estimate using our term life insurance calculator.
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.
In the example above, we mention some basic expenses to consider when deciding how much term life insurance you should buy.
Since we typically have more than just a few expenses, it’s better to round up and make sure you have sufficient coverage. $500,000 in coverage would be reasonable for a person in the scenario above.
How much group term life insurance do I need? This is a bigger question for employers than policyholders. Many employers provide complimentary group coverage for their employees. For example, federal employees have life and term life insurance established for them through the Federal Employees’ Group Life Insurance Program (FEGLI).
How much term life insurance do I need?
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
- 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.
- 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.
- 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 long should my term life insurance be?
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, 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.
Can my non-working spouse get life insurance?
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 they don’t have an income of their own. These rules range from 50 percent of the spouse’s life insurance amount up to 100 percent.
There is usually a term insurance maximum limit, or life insurance 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 a million.
How Much Term Life Insurance You Can Get: The Bottom Line
At the end of the day, we want to make sure we have invested enough into a life insurance policy, but not too much. At the minimum, you’ll want to calculate an approximate number for all of your debts, and use that number to choose a term life insurance death benefit.
If you want to get the maximum amount of life insurance possible, you’ll need to shop around. Generally, that amount is 25x your annual income.
Protecting your family is a good feeling. Having enough term life insurance is always a good idea. Ready to get covered? Start comparing term life insurance rates using our FREE quote tool.
Frequently Asked Questions
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.
#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. It would be wise to research the difference between term life insurance vs 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.
Beyond age, there are a number of other factors that contribute to how term life insurance pricing works.
#6 – What type of life insurance is best?
Prudential, MetLife, and State Farm are typically safe bets as life insurance providers. 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.