Each insurance company has their own specific underwriting criteria and their own thresholds of how much coverage they will issue. These guidelines are based on a person's health, age and mortality (expected age at death) and their financial situation. Insurance companies also carry reinsurance which caps the insurance company's exposure on any specific claim at a certain amount, and the reinsurance carrier has requirements as well that must be followed by the insurance company.
If you do a google search, you will be able to see a copies of numerous insurance company life insurance applications online. Just type in "individual life insurance application" and you can see the kind of questions that are asked. There are mostly very similar in nature.
As for the amount of coverage on Melinda's life - yes, it is extreme from my own experience. Someone asked if her potential future earnings have been taken into account. From my own personal experience - no. She was a stay-at-home mom when the policy was purchased. The amount of coverage that would have been necessary so that her family could have maintained their lifestyle would have been much less than $1,000,000. The life insurance application almost always requires disclosure of financial information and since she was a dependent spouse, this would have included financial info on her spouse, their assets, and they would likely have asked how much life insurance coverage he had on his life. Many carriers will cap the non-working spouse's benefit at 50% of what the working spouse carriers. Many carriers will not require "proof" of the working spouse's life insurance coverage or income. They take your word for it. But many will either run a credit report or consumer report to see if there are financial problems.
The idea behind life insurance is to "maintain" the lifestyle of your loved ones if you die. It is not to enrich them or to set you up to be murdered by your spouse. Insurance companies tend to be very careful about setting people up for murder by giving someone (the beneficiary) an incentive to do it.
In order to maintain her family's lifestyle if she died, he would have had to have hired a babysitter, someone to clean the house, shop for groceries, make meals, drive the child to school or activities, etc.
I'm not sure what happened here. Something went awry with the life insurance, IMO. The insurance company did not have accurate info, IMO. The reason I say this is because I've read about his periods of unemployment and I am about 99% certain that if he had life insurance coverage on his own life, it wasn't anywhere close to a $1,000,000. He could have maintained coverage through a Union during spells of unemployment, but he was a power lineman, and that is one of the most hazardous occupations. Insurance companies are unlikely to place a large amount of life insurance company on people who have hazardous occupations, even on a group basis. Why? Because they are more likely to be killed in a work-related accident.
