You already have enough life insurance! How much can one need?
Did you know that when you apply for life insurance, insurance companies not only look at your health but also your financial obligations? Did you know that the older you get, the harder it gets to be approved for larger amounts of life insurance. It is not that insurance companies are worried about you getting closer to that end date (the day you pass away) but simply that your needs for life insurance diminish greatly as you get older. For example, a 30 year old has a much higher need for life insurance than a 70 year old. Why? Well simply because a 30 year old is more likely to have one or more kids that are dependent on him/her. The 30 year old may also have a non-working spouse that also depends on him/her for future income. Look at it this way, if your grandmother passes away (and I wish her a long life), her death will not have as much of an impact on your financial well being than if your spouse passes away (I wish her a long life too).
Now, what can you do with this information? Well, some people have ran into situations where they felt they needed a certain amount of insurance, applied for it and were turned down by the insurance company or received an approval for a much smaller amount. I would venture to guess that most of these people just got mad and decided to just forget about it and blamed the insurance company for their own failure and lack of education. The truth is, if you really feel you need a certain amount of life insurance coverage, there may be a way to still get it. How? Simply by presenting ALL your personal and financial information to the insurance company. For example, if you are 65, applying for ,000,000 in life insurance, have an income of about ,000 and all you tell the insurance company is that you want to replace income, you are very likely to be declined or be approved for a much smaller amount (particularly if you already have other coverages).
The key here, as it always is, is to give the insurance company as much information as possible. In other words, why do you need the amount that you are applying for? Some key factors to give the insurance company are:
What are your current liabilities? – Mortgage, final expense, other personal debts, business debts, taxes… *
What is your present income? Is it likely to go up in the near future? *
Who are your dependents? – Some examples would be: Spouses, grand-children, business partner, other investors, other dependents. *
Will this insurance be used for estate planning? – In some cases, estate taxes need to be paid upon your death.* Is a trust involved? If the life insurance is to be part of a trust and be paid over an extended period of time as opposed to one lump sum, that may make a difference* Do you have investments? – How much? Who are the beneficiaries of the investments? Are the investments being used as collateral for debts or other obligations? How liquid are the investments assets?* Are you replacing another policy with the one you are applying for?
One important thing to note is that people may think that accident only life insurance should not be considered as real insurance by insurance companies. Particularly since the chances of ever using that policy are statistically so small (unless you jump off airplanes every morning). Believe it or not, insurance companies consider these life insurance policy as much as any others. In other words, if you have a 0,000 accident only life insurance policy and you feel you need a regular life insurance policy (one that will pay no matter how you die), that accident only life insurance may prevent you from getting a regular life insurance policy. Your choices are actually simple. Either prove that you do need the total amount of insurance you are applying for, or cancel the accident only life insurance policy.
Now, how about age? As we mentioned, your age can have a great impact on the total amount of life insurance you can qualify for. Here are some simple factors that are used by insurance companies. Between the ages of 25 and 35, the factor is about 32. What that means is that if your income is ,000, then the maximum amount of life insurance you can own is 0,000 (,000 X 32). For ages 36 to 45, the factor is about 25. For ages 46 to 55, the factor is about 20. For ages 56 to 65, the factor is about 10. And for ages 66 and up, the factor is about 5. Five does not seem like much but that is all one should need if no other factors besides income are considered.
Now, of course, they are some variations from company to company. If you decide that you need a more unusual amount of life insurance and you have very unusual circumstances, the insurance company you select may make a big difference. In the same manner that some companies may be be better for people with a cancer history, some companies may be better if, for example, your dependents are pets or your dependent is a favorite painting!
As we say in all of our articles, make sure to ask, ask ask and ask more questions. Remember, just because one company said no, does not always mean that they all will. Be well!
About the Author
Philippe Deray – About the Author:
Philippe Deray is President and CEO of MCD Financial Services and MCD Life. Our web site address is http://www.mcdlife.com