When it comes time to purchase a life insurance policy, having as much coverage as possible can seem appealing. However, there is a limit, and life insurance companies will cap your policy coverage at a certain point. We broke down what a limit on life insurance can look like.

How Much Life Insurance You Can Have

There is a process used by insurance companies to help determine how much coverage one person should have and thus how much you can get.

The equation may take into account your annual income, net worth, including assets and liabilities, dependents, career choice, any risky activities, health status, family history, and more!

The insurance company will come up with a coverage amount fit for your situation, and essentially, according to them, this is the coverage you may have. While you can certainly shop around for more coverage, the amount will usually be in the same ballpark because life insurance companies generally use the same information to calculate your need.

How to Calculate Your Own Need

If you’re preparing to find a life insurance policy and wonder what you may need to sustain your current life circumstance for dependents, this is the most detailed process:

  1. Calculate any financial liabilities and debts (mortgages, car loans, education expenses, and funeral costs)
  2. Calculate what the loss of your income would be (Multiply your annual salary by the term of a proposed life insurance policy).
  3. Add the numbers from 1. and 2. together to determine your need.
  4. Calculate and subtract your assets (savings, stocks, any life insurance policies already in possession) from the number determined in 3.
  5. Use the final number as a range to shop around for life insurance policies.

A Solution: More Than One Policy

If you’ve shopped around for life insurance policies and haven’t found any willing to give you the amount you desire, it may be time to consider a second policy. There are generally no restrictions on how many policies a person can have, other than a person cannot over-insure themselves.

Be sure you don’t try to scam the system by jumping around between health insurance providers to try and bolster your coverage. This can result in denials across the board due to many of the life insurance policies sharing a database for applications.

Here are a few situations in which someone might need to take out multiple policies:

A Policy Through Work: An employer supplying a life insurance policy can be a major benefit. However, sometimes they limit the amounts and don’t offer much flexibility for professionals with changing needs. If you find that your work policy covers a small amount, but your family or assets are growing, it may be time to find a supplementary policy.

A Policy From Youth: Parents can take out life insurance policies on their children upon birth to help cover any funeral costs or other needs in the event of their death. Those policy amounts are usually very small and leave parents as the beneficiary. If you’re an adult with your own responsibilities and dependents, you will need a secondary life insurance policy to cover you but go toward your own dependents.

Increased Wealth and/or Expenses: If you bought a term policy when you were in your early 20s, it’s possible that your wealth has grown significantly since then. That policy, though it may still be valid, may not be enough to cover your present-day needs. In this case, it can be best to purchase an additional life insurance policy.