Insurance companies in America limit the total amount of life insurance you can carry on your life. This is to protect you and the insurance company. In this blog post, I’ll answer the common question of “how much life insurance can I get“ in 2023 as well as show the life insurance coverage limits guidelines.
Table of contents
- Life insurance policy limits explained
- Why do life insurance companies have coverage limits?
- How do life insurance companies determine how much life insurance I can buy?
- Life insurance multiple of income table explained
- Maximum life insurance coverage limits table
- How much can life insurance can a stay-at-home spouse have?
- How much life insurance can I get for business purposes?
- How much life insurance can I get for estate planning?
- How much life insurance and I eligible for? Examples
- How much life insurance should I have?
- Tips on getting the most amount of life insurance
Life insurance policy limits explained
There is a common misconception that anyone can purchase as much life insurance as they like as long as they can pay the monthly premium. However, this is not the case. Life insurance is designed to:
- Replace the loss of future income that would have been earned in the event of a premature death
- Pay off outstanding debts
- Cover final expenses
- Cover estate tax liabilities
- Replace the financial loss of a key person to a business
Life insurance is not designed to be a windfall like a winning lottery ticket to make the beneficiaries rich and much better off compared to if the insured were alive and continued to work.
Why do life insurance companies have coverage limits?
The primary reason life insurance companies have coverage limits is that life insurance companies do not want you to be worth more dead than alive. This is to protect you and the insurance company.
Similar to other insurances, life insurance is designed to make the beneficiaries whole and to replace the loss financially.
How do life insurance companies determine how much life insurance I can buy?
Each life insurance company has their own financial underwriting guidelines to determine the total amount of life insurance they allow the insured to have.
The most common formula life insurance companies use to calculate life insurance limits is called a multiple of income table.
Life insurance multiple of income table explained
A life insurance multiple of income table uses your age and your annual gross income to determine the total amount of life insurance you can have on your life.
The younger the applicant is, theoretically the greater number of working years that are ahead of them that need to be insured in the event of a premature death. This is why life insurance companies allow younger applicants to have the largest multiple in life insurance coverage in comparison to their gross annual income, as seen in sample multiple of income table below.
Maximum life insurance coverage limits table
Below is a sample multiple of income table from one of the largest life insurance companies in America. This is the quickest and easiest way to see how much life insurance you can apply for income and debt protection.
|Ages||Life Insurance Coverage Limits|
|21-40||30 x annual gross income|
|41-50||20 x annual gross income|
|51-60||15 x annual gross income|
|61-70||10 x annual gross income|
|70 and over||Individual consideration (usually 5 x annual gross income)|
- Gross earned income typically includes salary, bonuses, commissions and deferred compensation. Gross income does not include household income or income from investments.
- The table includes the total all individual coverage from all carriers excluding the group basic from an employer.
Note: Each company has their own maximum life insurance (multiple of income) limit guidelines.
How much can life insurance can a stay-at-home spouse have?
Depending on the insurance company, some insurers will allow a stay-at-home spouse/partner/parent to match up to 100% of the income earning spouse/domestic partner coverage to a maximum of $3 million. Other carriers will limit the non-working spouse to carry 50% of the earning spouse/domestic partner coverage to a maximum of $1 million. For ages over 70, the guidelines typically are individual consideration.
|21-70||Up to 100% of the income of the working spouse’s coverage up to $3 million (depending on insurer, some carriers go up to 50% and maximum $1.5 million)|
|71+||Individual consideration (100% to 50% of spouse, depending on insurer)|
How much life insurance can I get for business purposes?
The table below shows how much life insurance you can have for business purposes; including for a key person, buy-sell agreement and debt repayment.
|Key Person||5 x to 10 x annual wages (larger amounts may be available on an individual basis), up to 100% of non-wage benefits may be available at the underwriters discretion|
|Buy-Sell||Coverage is usually limited to the to the market value of the proposed insureds portion of the business detailed in the Buy-Sell or Buy-Out agreement.|
|Debt Repayment and SBA Loan||100% of the debt (the amount up to the outstanding principal of the loan)|
How much life insurance can I get for estate planning?
For those that are subject to estate taxes when they pass away and or are high-net-worth individuals, life insurance companies use the formula below to calculate the total amount of life insurance you can carry.
|Estate Planning||Net-worth x 55% (projected net-worth with a 6% growth rate)|
How much life insurance and I eligible for? Examples
A 35-year old with a spouse, two children and a mortgage is looking for life insurance to protect their family. Their annual income before taxes (gross) is $70k a year. They are eligible for up to $2.1 million in total individual life insurance coverage, not including the basic life insurance through work.
While the life insurance company allows the insured to go up to 30 x their annual income in life insurance, they chose a $1 million 30 year term policy for $64 month, which is 14 x their annual income in life insurance (14 years of income replacement). By choosing this policy amount and term duration it also keeps their monthly premium within their budget while providing the peace of mind their family will receive one million dollars, income tax-free if at anytime they were to pass away in the next 30 years.
If their needs change, such as another child, new home with larger mortgage or raise in income, they can apply for an additional policy (based on age and health at that time) to cover the new obligations.
A 50-year old is looking to replace their group coverage through work. They make $100k a year and their group life insurance rates just increased due to their new age bracket. They are looking to replace their supplemental group life insurance which is 5 x their annual income or $500k with their own individual policy outside of work.
While they are eligible for 20 x their annual income in life insurance or $2 million, they choose a $500k 20 year fixed term policy for $70 month.
This will allow them to keep the basic insurance from work, which is free 1x their salary and replace their supplemental group life insurance to lock in the rate and the policy will not go away if they leave their employer.
Additionally, this policy achieves their life insurance goals which are to: protect their income, spouse and mortgage until retirement age. At this time they plan on being self-insured.
How much life insurance should I have?
Instantly calculate how much life insurance you need. Use our life insurance calculator which shows how much life insurance you should carry to properly protect you family or business.
Tips on getting the most amount of life insurance
If you want to get the most amount of life insurance, there are several tips I recommend:
- Use gross income (before taxes)
- Shop around
- Replace an existing policy
- Lock in the maximum coverage now
- High-net-worth individuals
Many top companies will allow you to use your gross (before taxes) earned income which typically includes salary, bonuses, commissions and deferred compensation. Using before taxes income will allow you maximize your life insurance coverage limits.
Each life insurance has their own financial underwriting guidelines which means some will allow you to carry more coverage than others. If one company is not allowing you to buy the desired life insurance policy amount you can shop around (or use a broker) to see if there is a company that will.
Replace a current policy
Life insurance companies include the total of all individual life insurance coverage from all carriers excluding the group basic from an employer when underwriting a new policy. Therefore, to qualify for a new policy many clients will have to replace an existing policy so they are not overinsured per the underwriter.
Lock in a policy today
While everyone wants the most amount of life insurance they can get to protect their family sometimes financially you may not qualify for the amount you had in mind. In these instances, it’s best to lock in a policy today for the maximum amount you do qualify for then you can always apply for additional coverage later (based on your age, health and income at that time). This way your loved ones are protected now and also you are locking in a lower rate since you are younger.
High-net-worth individuals (net-worth over $1 million) and their heirs may be subject to estate taxes, therefore, many life insurance companies have different underwriting guidelines that often allow for more coverage then you would otherwise qualify for based on age and annual income.
The total amount of life insurance you can get for income and debt protection is primarily based on your age and income. To prevent overinsurance, insurance companies use financial underwriting to determine the maximum amount of life insurance you can carry.
Life insurance companies allow applicants ages 40 (forty) and under to have total individual life insurance coverage up to 30 x gross annual income. For ages 41 to 50 (fifty), life insurance companies allow up to 20 x gross annual income in total individual life insurance coverage. For ages 51 to 60 (sixty), life insurance companies allow for up to 15 x gross annual income in total individual life insurance. For ages 61 to 70 (seventy), life insurance companies allow up to 10 x gross annual income in total individual life insurance coverage. For ages 70 and over, total life insurance coverage for debt protection, income replacement is typically 5x annual income in life insurance or individual consideration by the insurance company.
Is there a limit on how many life insurance polices I can have?
No. You can have multiple life insurance policies from different companies as long as you meet the financial underwriting guidelines.
How much term life insurance can I buy?
Life insurance companies allow you to buy between 5 times to 30 times your gross annual income in term life insurance.
Do life insurance companies ask about how much life insurance I currently have?
Yes. Life insurance companies ask if you have any pending applications, current coverage and if you’re replacing any coverage to ensure you are not overinsured.
Does group life coverage count?
Basic group life coverage through an employer or association is not included when calculating total coverage you can purchase. Supplemental or additional group life insurance is typically included when calculating how much new coverage you can buy.
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Have a question on how much life insurance you can qualify for? Give us a call at (888) 676-5429 and we can help! We represent a dozen of the best life insurance companies and can shop to see which carrier will offer you the most coverage for your situation.
*Note each company has their own maximum life insurance limits (multiple of income) allowed guidelines. The tables shown above are from several of the largest life insurance companies in America.
This article is for educational purposes only and not to used as an offer or guaranteed amount of coverage.