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If you generate a certain amount of income, and your goal when purchasing a life insurance policy is to make sure your family’s finances are covered if you pass away, then a million dollar policy might be right for you. While a million dollars sounds like a lot of money, life insurance could cover future expenses for your family, such as your mortgage and college tuition for your children, and act as a replacement income for your spouse. Plus, there may be outstanding medical bills and funeral costs related to your passing which can add up quickly on top of normal life expenses. However, not everyone will be able to afford or be eligible for a million dollar death benefit. 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 circumstances.
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. So, for example, if you make $100,000 a year or more, a million dollar policy might make financial sense. You may also want that much coverage if you have significant future expenses. For example, if you plan on putting five children through college, you might need more coverage than if you only have one child. You might also need more coverage if you have a partner or child with a disability who will need expensive medical care in the future.
If you are purchasing life insurance for your stay-at-home spouse, you might want to consider how much the value of his or her work in the house is worth. What would it cost to hire someone to cook and clean, for example, if that person were not there? On the other hand, if you work while your spouse stays home and something happens to you, would your spouse go back to work, or is the goal for life insurance to replace your income?
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.
Not everyone will be eligible for a million dollar life insurance policy, as coverage may be dependent on your income 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. You will likely want to consult with a financial expert to determine not only how much life insurance you need, but how much you will qualify for. 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 circumstances). 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.
Burial and funeral costs can add up quickly, putting a financial burden on your next of kin during an already difficult time. Life expenses like mortgages, college tuitions and medical bills are also examples of costs that could fall on your loved ones after your death.
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 circumstances 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.
That depends on what you are hoping your insurance will pay for, as well as factors such as your age, number of dependents and 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.
There are multiple factors that go into determining your life insurance premium. The length of the policy and its payout benefit impact your cost, as does your health, your age and other personal details about you.