When it comes to money, the more is always the merrier. This is no less true to life insurance benefit or coverage. A bigger coverage obviously means a safer future for your inheritors. And, you should ensure that you do arrange a safer future for your beloved ones through your life insurance policy.
As life insurance is not very costly, you would naturally want to get the maximum life insurance benefit possible for you. But there is a limit to it. If you are in for the highest possible coverage, you should be asking yourself or at least be curious to know – how much life insurance can I buy?
Let’s find the answer.
There Is a Limit
As I have already said, there is a limit to how much life insurance you can buy. The reasons are obvious. Your insurance plan is meant to ensure your dependents’ financial security. In fact, is a safety net to compensate for the probable financial loss you family would have through your death unexpectedly befalling you. By no means, its objective is to make you a millionaire.
So if you apply for a visibly larger amount of life insurance, your eligibility will be seen about. The person known as underwriter (who decides your life insurance fate) will check a few things and determine your insurable limit:
Your Net Worth
When your application asks for a large figure, the underwriter will justify what financial value you hold for the rest of your life. Otherwise speaking, he will (secretly) take an eligibility test for the amount you have requested for.
Your net worth (the money value of all your possessions minus liabilities) along with your income importantly factors into your coverage limit. Net worth is counted for your income to premium ratio. Your net worth being inside or up to 5 million, 25% is how much you are typically eligible for. When it is over the 5 million mark, the ratio goes up to 40% and when it crosses 10 million, the ratio stands at 60%.
How Much You Earn
Your income is also an essential factor in how much life insurance you can buy. Generally speaking, you can have a multiple of your annual income for coverage. Depending upon other factors like your age or net worth, the coverage may go up to 30 times your annual income. Generally, the younger you are, the greater life insurance coverage you will be eligible to get.
A considerable coverage is possible till you are in your sixties. As you advance toward retirement age, the amount naturally downsizes. The downsizing starts once you cross your thirties. Till thirties, if everything goes okay with your application process, you may expect to get the mostly sanctioned maximum coverage between 25 or 30 times. Of course, thirty times your salary is possible at the lower ends with a higher net worth. Twenty-five times is how much most insurers will okay. But at turning 40, it will go downward by 5 times every ten years. So, if you were eligible for 25 times at or before 40, it will be 20 times when you are between 41-50. Thus it will come down to 15 times when you are between 51-60 and 10 times your salary when you cross 60.
However, you need to remember that getting life insurance after 60 may not be easy at all.
The Purpose of the Policy
How much life insurance you can buy also depends on the purpose of the policy. There are different types of life insurance policies available to meet your specific needs. For example, as a level term life insurance policy will provide your family the financial protection, you may qualify for millions of dollars for it. But when you buy a final expense insurance policy, the coverage will be pretty low. Mostly, the coverage for such a policy maximally stays within $25,000. There’s another type of life insurance known as decreasing term life insurance. Purchased against your mortgage, your benefit will get slimmer as time passes.
So, the coverage issue is also policy-specific.
What If I Already Own Policies?
You might wonder whether it is possible to own multiple policies or how already owning a policy will affect your coverage. The answer is simple: no matter how many life insurance policies you may own, you cannot cross the insurability cap. If you are eligible to buy $1 million and have already gotten a policy worth its half from one company, another company will not sell more than the half that you are eligible for.
Hopefully, you have found answer to your question: how much life insurance can I buy?
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