Term Life Insurance Coverage Minimum

The term life insurance coverage minimum amount is $25,000, but for many, that is not enough. Learn how much life insurance coverage is right for you and your family.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Written by Rachael Brennan
Licensed Insurance Agent Rachael Brennan

Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent Benji Carr

UPDATED: Jun 1, 2022

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Quick Facts

  • The smallest life insurance policy available is between $25,000 and $50,000
  • There are a few good reasons individuals may want to purchase minimal policies
  • For many people, though, smaller policies make little financial or practical sense

There are several reasons why you may be interested in purchasing the smallest life insurance policy possible, ranging from cost to immediate coverage needs. The minimum life insurance policy you can purchase on a “term” basis is typically $100,000, though some companies offer policies of as low as $25,000 to $50,000.

Before you immediately purchase one of these, it’s important to explore other options and weigh the pros and cons of policies with low minimums.

What is the minimum life insurance policy?

So, what is the lowest life insurance policy amount you can get? For most life insurance companies, the smallest life insurance policy offered is for $100,000 in coverage. However, there are some companies, such as Genworth Life Insurance Company and AIG American General Life Insurance, that offer term coverage in the amount of $50,000 or even $25,000.

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Why purchase the smallest life insurance policy possible?

For many people, there is little benefit to purchasing a small life insurance policy. After all, per the experts, you should carry enough insurance for your family to pay off your debts (plus interest), replace your income, and offset the impacts of inflation. However, there may be a few good reasons to purchase minimal life insurance coverage.

One of the biggest benefits of purchasing a small policy is that benefits become active almost immediately. These types of small life insurance policies are commonly referred to as “Simplified Issue Term” or “Instant Issue Term.”

Not only do these small policies become active instantly, but you can apply for them online or over the phone. You also do not need to undergo a medical exam to purchase one. The insurer will approve or decline your application on the spot based on your self-reported answers.

Not-So-Good Reasons To Purchase a Small Life Insurance Policy

Many people mistakenly assume that the smaller amounts of coverage they buy, the smaller their rates will be. The truth is that buying life insurance is a lot like buying grocery items in bulk: The cost goes down the more you purchase.

Life insurance companies sell life insurance “by the unit.” Each unit of coverage is worth $1,000. For a policy of $1 million or more, you’re looking at paying around $0.37 per unit. However, for a policy of between $100K and $500K, you can expect to pay as much as $0.12 more per unit, at $0.49 per unit. For a policy lower than these standard minimums, you’re looking at paying significantly more per unit. At some point, you must ask yourself, is it worth it to buy the smallest life insurance policy, or should you stick with the typical minimum?

How much life insurance can you get?

Before you address the question of how much life insurance should you buy, it is important to first know how much life insurance you qualify for. Many people assume that the only qualifying criteria underwriters consider before issuing life insurance policies are the applicant’s age and health. The truth is that underwriters must also factor in the applicant’s income.

Aside from ensuring that you can afford coverage, the number-one reason underwriters consider applicants’ income is because insurance companies need to prevent excess coverage situations. In other words, the life insurance company wants to avoid paying out amounts that exceed beneficiaries’ economic losses. This is, in large part, how they protect themselves financially.

How much life insurance can you purchase based on your income? Though the answer varies from insurance company to insurance company, most only allow applicants to purchase coverage up to 25 times their annual income. If you make $40,000 a year, the maximum amount of coverage you can receive is $750,000. If you make $150,000 per year, your max coverage amount is $3,750,000.

If you try to purchase a larger policy, the underwriter will require not only a medical exam but also proof of income and employment. Types of documents the underwriter may require include the following:

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

One of the easiest ways to establish proof of employment and income is to have your employer pay your life insurance premiums on your behalf out of your paychecks.

What is the minimum life insurance policy for you?

Once you determine how much coverage you can afford, you must then consider how much you actually need. The amount of coverage you need depends largely on your needs, amount of debt, and wishes for your family once you are no longer around to support them.

Income replacement is one factor that experts urge you to give considerable weight to. At a minimum, your policy should cover between 10 to 15 times your annual income, though these numbers may be higher or lower depending on your age when you purchase the policy.

Next, consider your debt load. Do you have remaining mortgage payments? Considerable student debt? Auto loans? Your policy should be enough to pay off this debt, plus interest, and still cover your lost income.

Finally, consider funeral and burial expenses and other end-of-life costs. The World Population Review reports that average funeral costs are between $7,000 and $9,000, with the median cost being $7,360. Some states, such as New York, California, and Hawaii, have average funeral costs that range from $10,700 to nearly $15,000.

These figures do not account for end-of-life costs, which range from $11,825 in Mississippi to as much as $26,492 in Hawaii. The average total cost of death is $22,490 but can soar as high as $41,467.

If you give weight to each of these factors, you will almost certainly want to purchase something greater than the smallest life insurance policy available.

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Recap: Minimum Life Insurance Coverage Is Rarely Best

There are some instances in which you may be better served by a smaller life insurance policy, such as if you need immediate coverage without having to go through a bunch of hoops. However, for most people, it makes more financial and practical sense to purchase life insurance policies with larger coverage amounts.

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