Quick Facts
We understand that shopping for term life insurance quotes might be confusing. With countless term life insurance policies to choose from, many questions arise. How much term life insurance can you buy? Should you get 20 or 30-year term life insurance?
This guide will help you find out how much life insurance you can buy, how much life insurance you need, and whether you need multiple life insurance policies. Additionally, you will learn about the max life insurance claim ratio. Keep reading to compare term life insurance quotes from companies in your area.
Table of Contents
Determining How Much Term Life Insurance You Need
What is the ideal amount of life insurance coverage? You can get a rough estimate using our term life insurance calculator.
Read More: Types of Life Insurance
The top reason people buy term life insurance is to replace income to protect their families. You may have other reasons, such as planning your business or paying estate taxes.
Consider these questions to determine how much term life insurance you should buy:
- 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.
To get a better idea of the amount of life insurance you need, consider the following formula: (Immediate Obligations + Future Income) – Existing Resources = Life Insurance Need.
This table helps visualize this equation with common household expenses your life insurance policy can help cover.
Term Life Insurance Coverage Example
| Expense Type | Cost |
|---|---|
| Mortgage | $250,000 |
| Student Debt | $75,000 |
| Auto Loans | $35,000 |
| Funeral Expenses | $15,000 |
| Total | $410,000 |
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As you can see, most families need a minimum of $500,000 in term life insurance coverage to ensure all debts are covered.
Read More:
- Can you have multiple life insurance policies?
- Can I cash out a term life insurance policy?
- What is the minimum coverage amount for life insurance?
- How long should life insurance coverage last?
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Determining How Much Term Life Insurance You Can Buy
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 |
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Read more: Life Insurance Rate Bands: How They Can Save You Money
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. Below are some examples of what 25 times your salary could be if you qualify.
Maximum Term Life Insurance Amounts
| Annual Salary | Term Life Maximum |
|---|---|
| $30,000 | $750,000 |
| $40,000 | $1,000,000 |
| $75,000 | $1,875.000 |
| $100,000 | $2,500,000 |
| $150,000 | $3,750,000 |
| $250,000 | $6,250,000 |
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The company will often consider other factors during life insurance underwriting, 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. (For more information, read our “How much does a million dollar life insurance policy cost?“).
Most life insurance companies will not ask for proof of income for smaller policies.Schimri YoyoLicensed Agent & Financial Advisor
Additional requirements kick in for policy coverage of $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.
Learn More: The Problem With Employer-Provided Life Insurance
Getting The Right Term Insurance Policy Length
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?
Use the largest number of years to select a policy for that time frame. Another option is to layer multiple policies together to cover your needs. This approach could save you 25% or more on the cost of a single policy.
Learn More: 35-Year Term Life Insurance
Case Studies: Examples of Term Life Insurance Coverage
Case Study 1: John’s Family Protection
John is a 40-year-old married man with two children. He wants to ensure his family is financially protected in case of his untimely death. After assessing his financial situation and considering his family’s needs, John determines that he needs $1.5 million in term life insurance coverage.
This amount will provide his family with enough funds to cover their current living expenses, pay off their mortgage, and secure their children’s future education.
Case Study 2: Sarah’s Business Succession Plan
Sarah is a 55-year-old business owner who wants to protect her business and ensure a smooth succession plan. She calculates that the value of her business is $2 million. To safeguard her company and provide financial stability for her family, Sarah decided to purchase a term life insurance policy with a death benefit of $2 million.
This coverage will allow her family to continue the business operations or sell the business at a fair value in case of her passing.
Case Study 3: Mark’s Mortgage Protection
Mark recently bought a house and wants to protect his family from the financial burden of the mortgage if something were to happen to him. He determines that his outstanding mortgage is $300,000.
To ensure his family can continue living in their home without worrying about mortgage payments, Mark opts for a term life insurance policy with a death benefit of $300,000. This coverage will cover the remaining mortgage balance and provide his family with a secure living environment.
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The Bottom Line on How Much Term Life Insurance You Can Buy
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. Generally, that amount is 25 times your annual income. If you want to get the maximum amount of life insurance possible, you’ll need to shop around and compare term life insurance quotes online.
Read more: How do life insurance companies handle death with dignity cases?
If you’re ready to buy term life insurance today, use our comparison tool above to start comparing free life insurance quotes from local companies to find the most affordable term life insurance near you.
Frequently Asked Questions
How much term life insurance can I buy?
The amount of term life insurance coverage you can purchase varies depending on several factors, including your age, income, health status, and financial needs. Insurance companies typically offer coverage limits ranging from $100,000 to several million dollars.
Is there a maximum limit for term life insurance coverage?
While there is generally no specific maximum limit for term life insurance coverage, some insurance companies may have their own internal limits. It’s important to note that the coverage amount you can obtain may be subject to underwriting approval and affordability.
What factors should I consider when determining the amount of term life insurance to purchase?
When deciding how much term life insurance to buy, you should consider various factors such as your current income, outstanding debts (e.g., mortgage, loans), future financial obligations (e.g., education expenses for children), and your desired level of financial protection for your loved ones in the event of your death.
Can I increase my term life insurance coverage amount later?
In many cases, you can increase your term life insurance coverage amount in the future, but it may require additional underwriting and approval from the insurance company. Keep in mind that as you age or if your health deteriorates, the cost of obtaining additional coverage may increase.
Are there any limitations on the coverage amount based on my income?
Generally, there are no specific limitations on the coverage amount based solely on your income. However, insurance companies consider your income as part of the overall assessment of your financial situation when determining the maximum coverage amount they are willing to offer.
Can my non-working spouse get life insurance?
Yes, but there is usually a term insurance maximum limit or maximum amount for life insurance for non-working spouses, with the most common being $1 million.
Can you have too much term life insurance?
Yes, many policyholders run the risk of having too much term life coverage for too long. Determining your financial needs will help you buy the right amount of term life insurance.
Can you get a 40-year term life insurance?
Although it isn’t very popular, some companies do sell 40-year term policies.
Can you get a 30-year term life insurance?
Yes, 30-year term life insurance is one of the most popular term lengths and is available with most life insurance companies.
At what age should you stop term life insurance?
Retirement age is a good time to stop term life insurance if your savings and investments provide enough money to meet your needs.
What is the main disadvantage of term life insurance?
The biggest disadvantage of term life insurance is that coverage only lasts for as long as the term, and you receive nothing if you outlive the policy.
What happens if you live longer than your term life insurance?
You lose all access to death benefits and will not receive any premium returns unless you buy Return of Premium (ROP) life insurance.
Can you cash out a 20-year term life insurance policy?
No, you cannot cash out term life insurance. Only permanent life insurance policies come with cash value.
Which is better, whole life or term life insurance?
Deciding which is better between term and whole life depends on your lifestyle. Whole life insurance is more expensive but lasts your entire lifetime, while term life insurance is cheaper and best for covering short-term loans, such as a mortgage or college loans.
Why would you be denied term life insurance?
You could be denied term life insurance coverage due to your medical and financial history.
How do life insurance companies handle death with dignity cases?
What is the minimum coverage amount for life insurance?
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Written by:
Luke Fitzpatrick
Insurance Writer
Luke Fitzpatrick covers blockchain trends onForbes. He has been published inYahoo! News,Influencive and Tech In Asia. He is a guest lecturer at the University of Sydney, lecturing in Cross-Cultural Management and the Pre-MBA Program.
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Written by Luke Fitzpatrick
Insurance Writer
Reviewed by:
Kalyn Johnson
Insurance Claims Support & Sr. Adjuster
Kalyn grew up in an insurance family with a grandfather, aunt, and uncle leading successful careers as insurance agents. She soon found she has similar interests and followed in their footsteps. After spending about ten years working in the insurance industry as both an appraiser dispatcher and a senior property claims adjuster, she decided to combine her years of insurance experience with another...
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Reviewed by Kalyn Johnson
Insurance Claims Support & Sr. Adjuster
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