Policy Price

The principal reason for limiting the amount of coverage you can buy is to keep your life insurance policy properly aligned with the purpose of all insurance: to protect individuals from financial loss. It’s never to help you profit from another person’s death.

In keeping with this principle, the amount of coverage you buy (i.e. the size of your death benefit) should not exceed the financial injury which the insured’s death would inflict upon your beneficiaries. An acceptable coverage amount is typically determined by analyzing: 1) any debt you may have, 2) the income replacement you will need, and 3) an analysis of your estate.

Another limitation on the amount of life insurance that you can buy is that life insurance companies just aren’t prepared to offer policies whose face amount is above or below a certain benchmark. They don’t have the capabilities to cost-effectively handle very large or very small policies.

As a consequence of this latter limitation, you may find that policies with very low death benefits are actually rare and not very cost-effective. For instance, we’ve witnessed a policy whose death benefit was only ,000 cost exactly the same as a policy whose death benefit was 0,000 (for the same applicant)!

This is why its important to have a needs analysis completed with your insurance agent. An ethical insurance agent’s job is to suggest the appropriate insurance for your particular needs. You may be only concerned about final expenses because you have assets set aside to provide income replacement. Or maybe your concerned about replacing your income for a non working spouse. The agent should not be making recommendations based on your life plan. Ultimately it’s up to you to decide what policy fits into your budget and life plan.