Protecting income is a big reason for buying life insurance. If something happened to you unexpectedly and your family could no longer depend on your income, life insurance can provide a source of cash to help replace it.

With no strings attached, your family can use the payout from a life insurance plan to cover the everyday essentials like the mortgage, groceries, and utilities, along with long-term goals like college tuition.

About 68% of consumers cite replacing lost wages or income as a reason for owning life insurance, according to the 2021 LIMRA insurance industry study. Before you start comparing insurance quotes, remember that your income also factors into whether you qualify for life insurance and for how much. That said, it’s still possible – and sometimes necessary – to get covered even if you’re not bringing home a paycheck.

So how is life insurance based on income? Here’s what to know about the impact of your paycheck on your policy.

How does income affect your life insurance coverage?

Many people use income as a way to determine how much life insurance they should buy. The goal is to make sure the policy provides a big enough payout for income replacement if loved ones can’t depend on that salary anymore. A general rule of thumb is typically about seven to 10 times your income. Like any rule of thumb, though, it comes with limitations.

The ideal amount of coverage for you depends on your personal situation. Someone with larger expenses or debts might need more life insurance, while someone with a lot of savings might need less.

When you apply, life insurance companies ask about income because they want to make sure that you’re buying a policy that you can afford and that makes sense for your salary. Most insurance companies cap coverage at about 20 to 30 times your income, which is plenty for most people.

But what if you don’t have any income? Common reasons for buying life insurance without a paycheck include:

• You are unemployed. According to the 2021 LIMRA study, about one-third of respondents are concerned about maintaining a steady income this year. If you are one of them, having financial protection through life insurance can be even more important. If you find yourself between jobs temporarily, it shouldn’t have a big effect on your eligibility. Your insurer will likely use your last salary or an average of your earnings over the past few years to determine how much life insurance coverage you can buy. If you have been unemployed longer, they might ask more questions to understand your financial needs and make sure you can afford the premiums for the policy you plan to buy.
• You’re a stay-at-home parent. You might not make financial contributions as a stay-at-home parent, but you still support your household. According to Salary.com, a stay-at-home parent should earn more than $178,000 for all the jobs they perform daily: chauffeur, cook, event planner, day care teacher. Your spouse would need a way to cover those expenses if you were no longer there, and life insurance can help if the worst occurs. Most insurance companies will approve you for up to half your partner’s salary in life insurance.

Are life insurance premiums based on income?

Life insurance premiums are not based on income, but there are other factors that go into determining your life insurance rates. Your life insurance company will consider personal factors like your health, your age, and your lifestyle, as well as policy factors, like coverage amount and term length.

If your income varies or you are concerned about paying premiums, then consider term life insurance. Term life is simpler and more flexible and affordable than permanent life insurance. That makes term life insurance the best fit for most families. Premiums for a 30-year-old woman in good health start at about $15 per month for a 20-year, $100,000 policy.

Other financial factors that affect life insurance premiums

Life insurers do not check your credit score, but they do check your overall financial background to decide how much you should pay. They make a soft inquiry of your credit report and give you an insurance score, based on a number of factors, including your insurance history, income, debts, and driving history.

Insurance companies also check third-party sources to verify information you share, so make sure that you are upfront with your insurer. Being open about any financial challenges gives your agent the best chance to help you find the right policy.

Still have questions about life insurance by income?

We’re here to help you learn more about life insurance and income. Fidelity Life offers a wide variety of products to support people at every stage of life. Get your quote online today or call one of our agents at (855) 291-6365.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.