What Is The Minimum Life Insurance Policy?
Life insurance policies are designed to provide financial protection to your family and loved ones in case of your untimely death. There are several reasons why you may be interested in purchasing the smallest life insurance policy possible, ranging from cost to immediate coverage needs. The minimum life insurance policy you can purchase on a “term” basis is typically $100,000, though some companies offer policies of as low as $25,000 to $50,000.
What Is the Lowest Life Insurance Policy Amount You Can Get?
For most term life insurance companies, the smallest life insurance policy offered is for $100,000 in coverage. However, there are some companies, such as Genworth Life Insurance Company and AIG American General Life Insurance, that offer term coverage in the amount of $50,000 or even $25,000.
|Insurance Company||Lowest Policy Amount Offered|
|Most Term Life Insurance Companies||$100,000|
|Genworth Life Insurance Company||$50,000|
|AIG American General Life Insurance||$25,000|
Is It Worth Purchasing the Smallest Life Insurance Policy?
For many people, there is little benefit to purchasing the term life insurance policy minimum. After all, per the experts, you should carry enough insurance for your family to pay off your debts (plus interest), replace your income, and offset the impacts of inflation. However, there may be a few good reasons to purchase minimal life insurance coverage.
One of the biggest benefits of purchasing a small policy is that benefits become active almost immediately. These types of small life insurance policies are commonly referred to as “Simplified Issue Term” or “Instant Issue Term.”
Not only do these small policies become active instantly, but you can apply for them online or over the phone. They are no medical exam term life insurance so you also do not need to undergo a medical exam to purchase one. The insurer will approve or decline your application on the spot based on your self-reported answers.
However, buying life insurance is a lot like buying grocery items in bulk: The cost goes down the more you purchase. Term life insurance companies sell life insurance “by the unit.” Each unit of coverage is worth $1,000. For a policy of $1 million or more, you’re looking at paying around $0.37 per unit. However, for a policy of between $100K and $500K, you can expect to pay as much as $0.12 more per unit, at $0.49 per unit. For a policy lower than these standard minimums, you’re looking at paying significantly more per unit.
How Much Life Insurance Do You Need?
Before purchasing life insurance, it is important to know how much coverage you need. The amount of coverage you need depends largely on your needs, amount of debt, and wishes for your family once you are no longer around to support them. Income replacement is one factor that experts urge you to give considerable weight to. At a minimum, your policy should cover between 10 to 15 times your annual income, though these numbers may be higher or lower depending on your age when you purchase the policy.
Next, consider your debt load. Do you have remaining mortgage payments? Considerable student debt? Auto loans? Your policy should be enough to pay off this debt, plus interest, and still cover your lost income.
Finally, consider funeral and burial expenses and other end-of-life care costs and statistics. If you give weight to each of these factors, you will almost certainly want to purchase something greater than the smallest life insurance policy available.
There are also different types of term life insurance that can affect coverage and price. When you are ready to purchase life insurance, make sure to consult with an insurance expert to ensure that you are getting the coverage you need at a price you can afford.
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