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Key takeaways
- A million dollar life insurance policy could provide critical financial security for your family if you pass away prematurely.
- Carefully consider your family’s needs and finances to determine if this level of coverage is suitable and within reach.
- Eligibility requirements for a million dollar policy may depend on factors such as age, income, current health and more.
- The cost of life insurance may be lower for term policies than whole life policies, and can vary depending on age, health and other factors.
A million dollar life insurance policy could provide critical financial security for your family if you pass away prematurely. The death benefit could cover ongoing expenses like mortgage payments and college tuition, while also replacing your income for loved ones. Additionally, end-of-life medical and funeral costs could be covered. However, a policy of this size is not affordable or accessible for everyone. Carefully consider your family’s needs and finances to determine if this level of coverage is suitable and within reach. The key is making sure your family is financially protected if you are no longer there to provide for them. Bankrate’s insurance experts have put together some information to help you determine if a million dollar life insurance policy is right for your individual circ*mstances.
Determining if you need a million dollar life insurance policy
When determining how much life insurance you need, some financial experts suggest that you purchase a life insurance policy that is worth five to 15 times your annual income. For example, if you make $100,000 a year or more, a million dollar policy might make financial sense.
Here are some key considerations for determining if a $1 million life insurance policy is right for you:
- Annual income: Is your income $100,000 or more per year? The higher your income, the more coverage you may need.
- Future expenses: Do you have significant future costs to cover like multiple college tuitions or care for a child with special needs?
- Spousal income: If you are the sole breadwinner, would your spouse need to replace your income?
- Homemaker’s value: Calculate the value of your stay-at-home spouse’s cooking, cleaning, childcare, etc.
- Existing debts: Factor in any debts like a mortgage that would still need to be paid.
- Financial goals: Consider your family’s financial goals and needs if you were no longer able to provide.
Key questions to ask:
- What annual income would my family need to maintain their current lifestyle if I passed away?
- What large upcoming expenses like college tuition would still need to be paid?
- How much immediate cash would my family need for final expenses if I passed away?
- How much would it cost to replace my stay-at-home spouse’s household services?
- What debts like a mortgage would remain if I passed away?
- What are my family’s long term financial goals that life insurance proceeds could help fund?
Consider consulting with a financial advisor or certified financial planner to determine how much life insurance makes the most sense for you and your family.
Eligibility requirements
Not everyone will be eligible for a million dollar life insurance policy, as coverage may be dependent on your income, current health and other assets. If you are requesting a quote for a high death benefit amount, you may have to prove why you need so much coverage. There are other factors that insurers may look at, as well, including the following:
- Your age. Like most insurance products, the cost of life insurance is based on the amount of risk involved; in this case, how much and how soon the death benefit will be paid. This is one reason why term life insurance is typically so much less expensive for younger people; it is much less likely that a claim will need to be paid out before the term expires for a younger person.
- Your income. If you are just starting out in the workforce and make $30,000, it is not likely that you will be approved for a million dollar policy unless you can prove your need for one outside of how much income you need to replace for your beneficiary. In that case, you might only need $300,000–$500,000 worth of coverage to ensure that your loved ones are covered.
- Your health. It is easier to qualify for life insurance when you are in good health. If you are suffering from a chronic illness, you may be turned down or the insurer may come back with a counteroffer of less coverage than you requested. You will also earn a better premium if you are a non-smoker.
- Your other life insurance coverage. If you are applying for a second policy, the insurer is likely to take the amount of coverage in your initial policy into account when determining how much they will offer you for your policy.
Cost of million dollar life insurance
You might imagine that you would have to pay a great deal for a million dollar policy — but that is not necessarily true. If you are fairly young and in good health, a million dollars of coverage might not cost as much as you would think. However, there are many other factors that determine the cost of life insurance, particularly the type of policy you purchase.
A term life insurance policy that is only in effect for a set number of years is likely to be much less expensive, at least for younger individuals, than a whole life insurance policy which remains in effect as long as you pay your premiums (in most circ*mstances). Even if you select a term policy, the price will generally be lower if you select a shorter term. A 30-year term policy will usually cost more than a 10-year policy, for example, depending on the coverage amount you select.
Other factors come into play as well. Typically, men will pay a higher overall premium than women, as will smokers versus non-smokers. Even your career and lifestyle hobbies can impact the rate of your premium. The easiest way to figure out what a million dollar life insurance policy may cost for you is to get a quote from a life insurance provider.
Benefits of a million dollar life insurance policy
Purchasing life insurance may not be the best financial decision for everyone. However, in the event of your untimely death, life insurance can be very financially beneficial to your loved ones. Here’s a few expenses that life insurance can assist with in your absence:
- Burial and funeral expenses
- Mortgage payments
- College tuition
- Outstanding medical bills
- General living expenses and household bills
- Replacing lost income
- Estate taxes
It is important to sit down with your family, evaluate your financial situation and consider your end-goal in the event of a tragedy before purchasing any life insurance policy.
Frequently asked questions
Since every person’s circ*mstances are unique, a life insurance company that is good for one person might not be the best option for another. You may be looking for the policy with the lowest premium, while another individual may prefer a policy with several rider options for their children. Customer service, company reliability and ease of claim filing are all factors to consider.
Term life insurance, as the name suggests, lasts for a certain period, or term — usually 10, 20 or 30 years. Whole life insurance lasts for the policyholder’s entire life as long as they keep paying the premiums. Another difference between term life and whole life is that whole life policies also feature a savings component which the policyholder may be able to access before his or her death, although there are benefits and drawbacks to this.
A common guideline is 10-15 times your annual income. To determine how much life insurance you need, list all your debt, including mortgage, student loans and consumer debt, and add to that the amount it would take to support your family, which may include day-to-day expenses and tuition costs.
The length of the policy and its payout benefit impact your cost. Also, your health, age and other personal details can determine your life insurance premium.
