A million-dollar life insurance policy could seem like a lot, but it can also be too much. When calculating your life insurance needs, for your family and loved ones, it may be just the right amount to provide financially for your family when you die.
If you are shopping for term life insurance to pay off a million-dollar mortgage if you died unexpectedly, then a million-dollar policy would be a great solution. But, if you have two children who are planning to attend Ivy League schools rather than a state college, your million-dollar policy will probably fall short.
The bottom line is, that you should consider the financial risks you want to cover and then go shopping for life insurance that will mitigate those risks.
In this article, we’ll drill down into a million-dollar term life insurance policy and discuss the options you have so you can design a policy that will best meet the needs of your surviving loved ones when you’re no longer in the picture.
Why Buy a Million Dollar Term Life Insurance Policy?
Many people may not initially understand income replacement, but the idea is to buy an amount of life insurance that would provide an income similar to if you were alive if you should suddenly die.
This means, that if you should die unexpectedly, your surviving loved ones would have the funds needed to continue with the following:
- monthly living expenses (for X number of years)
- pay off the mortgage on the family home
- pay off auto loans and other personal loans
- pay off high-interest credit card
- funds for college tuition
- continue funding retirement plans for surviving spouse
- pay for final expenses such as funeral and burial costs
Is One Million in Term Life Insurance Enough?
Many life insurance professionals recommend a multiple of your annual salary as a recommended death benefit for your life insurance. Regretfully, this line of thinking will likely come up short when it comes to financial protection for your family.
A better method of determining how much life insurance you need to replace your income is to perform a financial needs analysis. Here’s an example of what this might look like:
- What is your age and your annual income?
- What debts are you currently servicing (mortgage, car loans, personal loans, and credit cards)?
- How much do you have in savings or other liquid assets?
- Are you contributing to a 529 college savings plan for college tuition?
- Are you contributing to a retirement plan for your spouse?
- Do you have outstanding student loans?
- What are the monthly living expenses for surviving loved ones?
- Other life insurance policies in force?
A good life insurance calculator will take into consideration your current liquid assets, your current and future financial obligations, and the monthly living expenses for your surviving loved ones and then calculate the death benefit needed to cover all of the financial risks for your family if you were to die unexpectedly.
In many cases, insurance shoppers are unprepared to determine an accurate amount of life insurance coverage, and many families end up financially unprotected because of an inadequate death benefit.
Rarely will you hear about a spouse complaining that his or her husband purchased too much life insurance to meet the financial needs of the surviving family members.
How Much Does a Million Dollar Life Insurance Policy Cost?
Fortunately, 21st-century technology allows individuals and families to compare term life insurance rates from many highly rated insurance companies simultaneously. Although the rates delivered in an online insurance comparison are subject to underwriting, it does provide a starting point for you to estimate what your monthly premium is likely to be for the amount of coverage you need.
Although term life insurance is the most straightforward type of life insurance, the underwriting process is typically the same as other types of life insurance. This means your rates can be impacted by many of the underwriting aspects involved with determining your rate class:
- Age and gender
- Current and historical health issues
- Nicotine use
- Lifestyle risk
- Occupational risk
- Foreign travel risk
- Death benefit
- Optional riders
Regretfully, many of these risks are not considered when you are using an online instant rater so you will need to speak with an independent insurance professional to confirm your insurance rates.
To give you an idea of how little a Million Dollar Term Life Insurance Policy might cost, we have listed the rates below for a male and female non-smoker in very good health life insurance rates for $1 million in coverage for 20 years:
| Age | Male | Female |
|---|---|---|
| 25 | $28.89 | $22.07 |
| 30 | $29.72 | $23.77 |
| 35 | $32.30 | $28.05 |
| 40 | $48.21 | $40.19 |
| 45 | $85.42 | $65.67 |
| 50 | $129.85 | $95.19 |
| 55 | $217.60 | $157.24 |
| 60 | $382.45 | $264.86 |
While reviewing the quote chart above, it’s apparent that a million-dollar term life policy will cost about the same or even less than two supreme pizzas until age 35. If this chart makes anything apparent, it’s that people should buy life insurance coverage as early in life as possible.
What Are My Options?
Since insurance companies are fiercely competing for term life insurance business, consumers have more options now than ever before:
- 10-year term, 20-year term, 25-year term, 30-year term and now 35 and 40 year-terms
- Medical exam (fully underwritten) or no medical exam (simplified issue)
- 6 or more optional riders to broaden your benefits and add living benefits
- Many highly rated life insurance companies to choose from
Who Should Consider a Million-Dollar Term Life Insurance Policy?
Unless you have a specific debt that must be covered for a million dollars, most people who buy million-dollar life insurance policies do so because they want to replace their income and provide financial protection for surviving loved ones.
Is a million-dollar policy right for you? The best way to know for sure is to use the life insurance calculator on this page to compare your rates.
