is there a limit of how much life insurance one can buy?

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Asked May 23, 2017

1 Answer


Life insurance is used to replace income. Its limits are based on the terms and conditions of the life insurance policy. There are some considerations a life insurance company takes into account when determining if there is an upper limit or cap on the amount of insurance a person can purchase. The various factors that an insurance company will consider are the age of the insured, the financial justification for a particular insurance limit and assessing the income needs of the person.

There is insurance calculation for an upper limit which is based on age, in determining the rationale of an upper limit that an individual may request. The rule of thumb is that if you are 40 years or younger, you will use a multiplier of 25 times your current annual income to calculate the upper limit that your life can be insured. For each ten years increase of age, the more multiple is reduced by 5. At 50 years old, for instance, you can be insured up to 20 times your current annual income.

When one reaches the age of 70, all bets are off. Some insurance companies will consider a $10,000, $15,000 and $20,000 limit, even at that age of 70 or will not even consider a multiplier. Some insurance companies do not use a multiplier and state that the ceiling amount for a non-working spouse is $1 million.

The rule of thumb goes away if you can prove that there is a financial justification" for a higher than average insurance limit. Your "financial justification" may be to replace your lost income, pay off your mortgage, pay your children's college expenses, pay your estate taxes, keep your business going, and help a charitable cause. But the whole point about life insurance is to replace one's current annual income and not to increase it your wealth.""

Answered May 24, 2017 by doclee

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