Why can’t I buy as much life insurance as I want?

My advisor said that there is a limit, but it seems like if I can afford it, why limit what I can buy?

Asked by Alec

2 Answers

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Hello Alec,

Seems that if you have the money to buy it, why can't you just do it - right? Here's why; life insurance is, technically, income replacement. Of course, I am talking about where families are involved. When it comes to a business owner buying life insurance for a Key Person plan or Buy and Sell agreement, that is different, but still a life insurance company will want justification for the amount of the coverage. Put another way, the death benefit has to relate to the risk in the specific situation.

Let's go back to families. Life insurers will allow, usually, about 10 to 12 times your income as the max that they will approve. A bit of simple math tells us that if you earn 50K per year, a policy of 500K would be normal because it replaces your annual income x 10 creating a 10 year "bucket of money" for those you love. It replaces your income for 10 years giving them 10 years of security. Tied to income, there are then limits on what you can do with this tool called life insurance. Can that limit be stretched a bit in some cases? Yes. Can you combine a number of policies from different carriers to exceed the limits? Yes, but most carriers will ask on the application if you have other policies, plus details about face amounts and whether you are replacing any of them with new coverage. See how they are maintaining the limits by gathering some info from you? Is it fair? If you were an insurer, you might say yes to that. You would want to keep within the guidelines because they make sense for the business you are in, not to mention that our Uncle has some things to say about how life insurance works. Hope that helps.

Kirby
Term.com
LifeInsuranceToday.US
and soon to come: NoExamLife.US | 01.06.16 @ 17:22
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$commenter.renderDisplayableName() — {comment} | 12.03.16 @ 00:28
Answered by Larry Gilmore, Insurance Agent in Marysville, WA
The reason you can't is the coverage has to be associable to a reasonable amount of risk. If you look around some companies may offer you more coverage than another but understand there are two parties in an insurance transaction. They have a say in what they will offer, you have a say in what you accept. You could possibly combine two policies with a couple different companies, but most companies have a combined limit ( their plan and other companies) that they won't go above. | 03.08.16 @ 06:43
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$commenter.renderDisplayableName() — {comment} | 12.03.16 @ 00:28
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