How Much Life Insurance Can You Purchase
Proving Financial Justification
When determining how much life insurance you can purchase, the upper limits are determined by terms and conditions set by each life insurance company. These terms and conditions vary by company. Life insurance is often purchased to replace lost income. There are other considerations a life insurance company considers when determining what amount someone can qualify for and purchase. The various factors that an insurance company will consider for comprehensive insurance policies are:
- the age of the insured
- financial justification for the insurance limit
- assessing the income needs of the person.
How Much Life insurance can you purchase, THE GENERAL RULE
Generally speaking, in the past ten times the annual income was recommended. Many advisors today are recommending twenty times your income. There are other circumstances where the estate will need more life insurance coverage. Insurance companies will need to know why you need a large amount of life insurance. If you are below the age of 40, the general rule on the amount someone can purchase is 25 times your annual income. However, insurance companies have individual sets of rules for determining the maximum amount of life insurance they will consider.
The financial justification formula varies by company. For example, if you are between the ages of 36-45 when you check the chart below, the income factor is 25. Depending on the company, this number can be between 20 to 30. The income factor will reduce by 5 for each age group.
So, if your income is $100,000 a year and is between the ages of 36-45, the income factor is 25. You multiply your annual income by the income factor to determine the maximum amount of coverage that can be purchased. $100,000 times 25 equals a $2,500,000.00 death benefit.
There are other underwriting factors involved in determining the maximum limit of coverage. How much life insurance can you purchase depends on the underwriting approval process, and this formula varies by life insurance companies? Here is a sample formula.
TYPICAL FINANCIAL UNDERWRITING FOCUS
- Is there an insurable interest?
- Is there a definable economic loss?
- Is there a legitimate need and purpose for insurance?
- What’s the total anticipated amount of life coverage intended with all carriers excluding the amount which is being replaced?
Are there applications pending with other carriers?
- Is the product applied for appropriate in meeting the needs?
- Does the amount of insurance applied for correlate with the amount of financial loss?
- Does the owner, beneficiary, and premium payer have an interest in the continued life of the proposed insured?
WHAT INSURANCE COMPANIES MAY REQUEST
Depending on the type of coverage applied for the following Third-Party Verification may be needed when the face amount of the policy will exceed 5 million:
- Attorney letter (letterhead and signature)
- CPA letter (letterhead and signature)
- Audited CPA statements – including all notes
- Broker-dealer statements
- Tax returns (incl. those verified by 4506TEZ Form)
- Tax assessment or appraisal
- W-2 Forms
- Charitable giving statements
No Need for Face-To-Face Meetings
Changes in technology have brought about many changes in the life insurance industry. One difference is the elimination of face-to-face meetings with an insurance agent. This meeting is no longer necessary. Although some companies still require that the agent and client meet face-to-face. However, many insurance companies have eliminated that requirement.
Today companies have incorporated e-signature and DocuSign via the internet as well as using voice signature through the use of the phone, a more advanced and faster approach. You can even run a needs analysis, health analyzer, receive quotes, select a product, and a carrier and complete a pre-application on your own!
Avoid Captive Agents!
A captive agent is just that captive! They must offer you products from the company that has “captured” and contracted them to solicit their insurance. Captive agents limit your choices of finding the best company at the best price, with the quickest turnaround time. Also, be aware of many of the larger agencies that always advertise only represent a handful of companies.
The key to finding the best life insurance quotes is to use an agency that represents multiple carriers. Strahan Financial Services works with the top best life insurance companies. Many of these companies use the accelerated underwriting process. Let us put our expertise to work for you.
WHY USE LIFE INSURANCE FOR PARENTS, HOW WE’RE DIFFERENT
We work with a team of highly talented individuals committed to providing you with unmatched professional service. With over 250 years of combined experience.
- We are professional
- We are knowledgeable
- We use the latest technology available
- We are customer-service driven
- We will earn your business
- We want to over-deliver on your expectations
- We wish to receive a genuine “Thank you!” at the end of the process
WE ONLY USE TOP RATED COMPANIES
We use America’s top life insurance companies. These companies are well known and financially strong. And, they are very highly rated by impartial rating agencies. Companies we recommend have an excellent reputation at paying claims promptly. They have a long, dependable history of operation in the United States. Many have been around for over a hundred years. Of the over 852 life insurance companies available to choose from in the U.S., we only use the top 1%.