A one-million-dollar life insurance policy may seem extravagant, but many people need them to support their financial goals. Most US citizens are underinsured in the life insurance department. When you add up all your debts, living expenses, and future financial obligations, you might find that you need that much coverage after all.
Fortunately, $1 million life insurance policies can be affordable, and an independent insurance agent can help you find the right coverage at the best possible price. But first, here's a closer review of million-dollar life insurance policies, why you might need one, how much they cost, and more.
What Is a Million-Dollar Life Insurance Policy?
A $1 million life insurance policy is a contract with a value of a million dollars made between you and the life insurance company. If you die while your policy is in force, your chosen beneficiary, or the person you want to get your death benefit, will receive a million-dollar lump sum payment.
Unless you name your estate as your beneficiary, life insurance proceeds are typically income-tax-free to the beneficiary. Life insurance can be subject to estate taxes, and under a few circumstances, income tax. When buying such a large policy, it's a good idea to discuss the details with your financial or tax advisor to fully understand all financial ramifications. Make sure to discuss your needs and concerns with your independent insurance agent first, too.
Current and Future Expenses to Consider
While you might not think you could ever need $1 million worth of life insurance, that amount could start to make more sense after reviewing some current and future expenses, including:
- Day-to-day expenses
- Mortgage or rent payments
- Student loan debt
- Caring for dependent children
- Future college or education expenses
- Credit card or other debt
- Final expenses
How Much Is a Million-Dollar Life Insurance Policy?
The cost of a $1 million life insurance policy depends on many different variables. For starters, the type of life insurance you purchase affects its cost. You can choose from:
- Term life insurance: Term life insurance provides financial protection for a specified period of time, such as 10, 20 or 30 years. If you die while the policy is in force, your beneficiaries receive the death benefit. If you live to the end of the policy term, the policy terminates unless it automatically renews. It is the most affordable type of life insurance, with premiums typically fixed for the life of the term.
- Permanent life insurance: Permanent life insurance provides more than a death benefit. These types of policies offer a long-term savings or investment component (cash value). Whole life, universal life, and variable life insurance are all examples of permanent life insurance. These policies are more expensive than term life policies because of the cash value accumulation feature.
How much your million dollar life insurance policy costs also depends on the following factors:
- Your age and gender
- Your smoker/non-smoker status
- Your lifestyle
- Your family history
- Your occupation and hobbies
- Your medical exam results
Life insurance costs tend to be cheaper for individuals who purchase their policy when they're young and in good health. Depending on the type of policy you select, your premiums may or may not increase as you age.
What Does Million-Dollar Life Insurance Cover?
The features of a $1 million policy depend on the type of policy you purchase. With a term life insurance policy, you're insured for the period of the term you purchased, such as 20 years. Term life policies are helpful for folks who have major expenses coming up in the near future, such as college tuition.
Take a look at the average amount charged for tuition and fees at public four-year colleges in the United States, by region. This type of information may help you decide the extent of life insurance coverage you need to provide for your family's future, should the worst happen.
| Region | Cost |
|---|---|
| New England | $14,900 |
| Middle States | $11,750 |
| Midwest | $11,740 |
| Southwest | $10,650 |
| West | $10,430 |
| South | $9,780 |
The average current cost of college tuition in the US varies by region. New England has the highest rates, at an average of nearly $14,900 in tuition for a four-year public college. The middle states and Midwest regions have similar costs of about $11,750. College tuition in the West, Southwest, South regions is less expensive on average.
Term life policies have the benefit of being renewable, but the premium rate upon renewal can be much more expensive with your age difference. Permanent life insurance, on the other hand, covers you for your entire life. Not only would your beneficiary receive the death benefits, but you also accumulate a "living benefit," or the cash value that accrues. Permanent policies allow you to borrow against the cash value of the policy as a non-taxable withdrawal.
How Does a Million-Dollar Life Insurance Policy Work?
Life insurance policies start off with a two-year "contestability period.” During the first two years of your policy, the life insurance carrier can investigate any claims you make and review your application, which could result in them declining your coverage if you falsified information. After the two-year period, the insurer cannot rescind your policy unless you're not keeping up with your premium payments.
Your beneficiaries can still receive the death benefit of your policy during the contestability period. Should you pass away within one week, one month, or six years after the policy goes into effect, the benefits/cash value would be payable as a lump sum to the beneficiary named on the policy. So, even if you only paid $100 on a $1 million policy before your death, the entire benefit would go to your beneficiary.
Does a Million-Dollar Life Insurance Policy Make Sense for You?
Conducting a self-inventory can greatly help you decide if a $1 million life insurance policy makes sense for you and your family's needs. You'll want to review your current financial needs and future obligations.
A $1 million life insurance policy could make sense if:
- You want to cover current outstanding debts like mortgages, loans, and credit card balances.
- You earn a high income and want to fully replace this for your surviving family after you pass.
- You need to pay for multiple college tuitions for your dependents and/or spouse.
- You want to buy a new house on top of your other expenses.
A good rule of thumb is that the minimal amount of life insurance should be equivalent to five to 10 times your current gross annual income. An independent insurance agent can also help you evaluate life insurance options so you can make an informed choice.
How to Get a Million-Dollar Life Insurance Policy
After you determine the type of policy you want, your next step is to fill out an application with the help of your independent insurance agent. Your independent insurance agent can submit the application to the life insurance company for you. Afterward, the insurance company will schedule an appointment for your medical exam.
Once the life insurance underwriter reviews the results of the medical exam, you'll receive your policy contract and premium rates. Once you sign the contract, return it to the life insurance company and make your first premium payment. Your life insurance will then be in effect either for the set term with term life insurance policies or until your death with permanent life insurance.
Final Word on Million-Dollar Life Insurance
One million dollars might seem like an extreme amount for life insurance coverage. However, when you consider your overall financial picture, including how much money would no longer be available to support your family after you pass, and the expenses you'll leave behind, a $1 million life insurance policy might actually work best.
Before making a decision, be sure to compare life insurance options and quotes. The cost of life insurance can vary considerably from one insurance company to another, even for the same type of policy. An independent insurance agent can help you find the best rates from reliable carriers.
Why Choose an Independent Insurance Agent for Life Insurance?
Independent insurance agents simplify the process by shopping and comparing life insurance quotes for you. Not only that, but they’ll also cut the jargon and clarify the fine print so you know exactly what you’re getting.
Independent insurance agents also have access to multiple insurance companies, ultimately finding you the best million-dollar life insurance coverage, accessibility, and competitive pricing while working for you.
Sources
https://www.cnbc.com/2022/01/11/amid-rising-prices-us-households-fall-deeper-in-debt.html
https://www.credible.com/blog/mortgages/how-much-does-it-cost-to-build-a-house/#:~:text=Depending%20on%20the%20size%20of,Buying%20a%20new%20home%3A%20%24416%2C900
https://www.dignitymemorial.com/costs/funeral
https://www.usnews.com/education/best-colleges/paying-for-college/articles/what-you-need-to-know-about-college-tuition-costs#:~:text=In%20looking%20just%20at%20schools,according%20to%20data%20reported%20to
