Part of our guide: Impaired Risk Life Insurance Underwriting by Condition →
Financial underwriting comes down to two questions: is the amount of coverage justified, and can the client afford the premium? Understanding both helps you design cases that sail through.
Key takeaways
- Carriers don’t want a client worth more dead than alive, so coverage must match a documented need.
- A common guideline limits premium to about 20% of annual income without additional justification.
- For retirees funding coverage with RMDs, carriers often justify amounts using net worth rather than earned income.
Carriers ask two things: is the coverage amount justified, and does the premium leave enough to live on?
Number 1: the amount of coverage
Carriers worry about over-insurance, which is associated with higher mortality. The most common justification is income replacement, based on age and earned income. See income multiples by age. Business and estate needs use different formulas.
Number 2: the premium
Carriers also don’t want premiums crowding out living expenses. Without special justification, a common limit is about 20% of annual income, sometimes lower. This rarely matters for younger clients buying term, but it can for large permanent cases.
When both matter: RMD-funded cases
Clients who use required minimum distributions (which now generally begin at age 73) to buy coverage for heirs have no earned income. Most carriers justify the amount as a percentage of net worth, then confirm the RMDs aren’t needed for living expenses. See using RMDs in life sales and IRA legacy planning after the SECURE Act.
Frequently asked questions
How much life insurance premium can I afford according to underwriters?
Many carriers use about 20% of annual income as a guideline, with exceptions for justified cases.
How do retirees justify life insurance coverage?
Usually based on net worth and the purpose, such as estate planning, rather than earned income.
Why do insurers limit how much coverage I can buy?
Over-insurance is linked to higher mortality risk, so carriers require coverage to match a genuine financial need.
Reviewed by Tim Fuller on 2026-09-25
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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