Million Dollar Life Insurance

Do you need a million dollar life insurance policy?

This much coverage can seem excessive, but when you consider your family’s needs over the next decade, a million dollars may not be enough.

That’s why getting a million dollars or more in term life coverage has become normal. If you need this much coverage, you should be able to buy it.

And you may be surprised how affordable the coverage can be, especially if you’re young and healthy.

How Does A Million Dollar Life Insurance Policy Work?

Life insurance policies work the same regardless of their size. Higher value policies just require higher premiums.

Life insurance policies of any size can be complex and confusing, so let’s break down some of the basics.

What Does Life Insurance Cover?

Your life insurance coverage could replace your income, pay your funeral expenses, and cover any unpaid bills you might leave if you died unexpectedly.

You may expect your health insurance to cover medical expenses even after you died, but health care policies pay only a portion of your bill, and your family would still be responsible for the rest — especially if you died from a terminal condition.

Life insurance can pay off these bills rather than leaving the burden for your family.

Besides medical bills, your policy can also cover funeral or other end-of-life costs. These expenses will vary depending on where you live and your family’s customs (certain traditions require added cost).

On average, funerals cost about $10,000, but some exceed $20,000. Again, having a life insurance policy could prevent your family from having to come up with this money.

Income Replacement

You might be thinking your income doesn’t come close to $1 million, so why would you need a million dollar life insurance policy?

To answer this question, consider how much money you would need to replace your income for 10 years, as many financial experts advise.

If you earn $100,000 a year, 10 years of income would put you right at $1 million. And this is just a basic guideline. The specifics of your life could require even more coverage.

For example, will your children attend a private college? You might need even more coverage. The same could be true if your future plans include buying a vacation home or having more children.

Business owners may also have additional debts or financial obligations to consider. Likewise, policyholders who care for their elderly parents may also want more coverage.

Here’s another factor to consider: interest rates. If you died and your family claimed your policy’s death benefit, they could decide to invest the money rather than spend it.

If you had $1 million in life insurance coverage — and if your family invested it and earned a 5 percent return — they could generate $50,000 a year on the investment.

Of course, during times of low interest rates, you’d need more life insurance coverage to generate the same $50,000 income off the life insurance payout.

Types of Life Insurance

Confused by all the insurance jargon you come across when shopping for coverage? You’re not alone. Here’s what you need to know:

Term Life Insurance

Term life insurance is the best bet for most millennials especially when you need $1 million or more in coverage. Term should be your cheapest option, and it could protect you until your net worth grows healthy enough to provide for your family without your income.

Term life insurance protects you for a specific term, or set amount of time. If you died after your term expired, your survivors wouldn’t receive any benefits.

This means term insurance is best for covering things like future college tuition, income replacement for a surviving spouse, or any remaining mortgage payments.

The most common term policy lasts 20 years, but you can buy policies with longer terms, (like a 30-year term policy or even up to 40 years) or shorter terms (10 years or fewer) depending on your needs. The shorter the term, the cheaper your premium, for the most part.

Permanent Life Insurance

Unlike term life coverage, permanent life insurance never expires — assuming you keep the premiums paid.

There are a few different types of permanent coverage: whole life insurance, universal life insurance, and guaranteed universal life insurance are the most common options.

Few permanent policies can reach $1 million in coverage and still remain affordable, but they do have another feature to help build financial freedom.

All forms of permanent life insurance gain their own cash value, slowly, over time. The way this cash value works creates the differences between the various types of permanent coverage.

  • Whole Life Insurance: Whole life insurance treats your policy’s cash value like money in a savings account. The money can grow at a small but steady rate of interest. Once the value builds, you could borrow against it or surrender the policy to claim the cash.
  • Universal Life Insurance: Universal life insurance lets your coverage amount and your cash value interact. You could use your cash value, once it builds, to lower your premiums or increase your coverage amount. Later in life you could even keep the coverage while paying no premiums.
  • Indexed or Variable Universal: These policies let you invest your policy’s cash value — within certain parameters your insurer creates. Indexed policies track a stock index such as NASDAQ; variable policies let you invest in mutual funds managed by the insurance company. Either of these coverages could deplete your cash during bad market conditions, jeopardizing your coverage.
  • Guaranteed Universal Life Insurance: These policies carry no market risk. Your premiums will remain the same, and you’ll have coverage as long as you pay them your premiums. Guaranteed universal resembles term coverage that can last the rest of your life. If you think you’ll still need to cover costs maintain assets, or support dependents when you retire, consider this kind of coverage.

While they do offer permanence and flexibility, permanent policies will not offer $1 million in affordable coverage you may be looking for. A term life policy will be your best way to secure a policy this size or larger.

For example, $1 million in term coverage may cost $40 to $50 a month while $1 million in guaranteed universal coverage could cost as much as $400 to $500 a month.

(Always remember actual premiums depend a lot on your age, health, and several other factors we’re about to cover.)

If you can afford universal life insurance, it’s certainly the best option because it won’t expire – but term insurance can ensure you’re protected when you and your family are most vulnerable.

What Affects The Cost of a $1 Million Life Insurance Policy?

Numerous factors affect life insurance premiums whether you’re buying a million dollars or just $25,000 in coverage.

Factors Affecting Your Life Insurance Premiums:

  • Age: Younger shoppers can access the lowest rates
  • Health: Healthier applicants can pay less, especially when they take a health exam to document their vital signs and lab results.
  • Policy Term: Longer terms mean higher premiums
  • Policy Type: As I said above, term policies cost a lot less than permanent policies.
  • Policy Size: More coverage costs more in premiums.
  • Occupation: Dangerous jobs put you at higher risk of an early death, and your insurance underwriters will respond to this risk by charging higher premiums.
  • Hobbies & Habits: As with your profession, your hobbies and habits can also increase premiums when they’re more dangerous. Smokers, for example, will pay a lot more.

Let’s look deeper at these issues to learn how you can save on million dollars or more of life insurance.

Age and Health

Older people pay more when they get new life insurance coverage. Why? It’s basic statistics: Older people are more likely to die sooner, and life insurers base premiums on their likelihood of paying your policy’s claim.

Health is another important factor for the same reason. Applicants with diabetes, COPD, or other potentially life-shortening conditions will pay higher premiums because they’re more likely to cost the insurer a claim.

For million dollar policies, age is even more important because it affects the multipliers insurance companies use to determine your eligibility.

Anyone younger than 40 can usually buy coverage worth 30 times their annual income; applicants older than 60 can buy coverage worth only 15 times their income.

This massive difference can directly impact your ability to qualify for $1 million or more in coverage.

Policy Term, Amount and Type

The nature of your policy will also affect your cost

Shorter terms mean lower costs because once again, your insurer takes less risk of a payout.

More coverage costs more too, naturally. A policy with $1 million in coverage will cost more than the same kind of policy with only $100,000 in coverage.

However, the million dollar policy won’t cost 10 times more even though it’s 10 times larger. This can help justify buying a larger policy: You’d get more coverage for your money.

And, as I said above, your policy type will make a huge difference. Term is a lot more affordable for most people, especially younger and healthier applicants.

Occupation

As you can already tell, insurers worry a lot about risk. There’s an entire profession — insurance underwriting — dedicated to assessing the risk your policy would present.

When you apply for coverage, your occupation will help underwriters assess the risk your coverage would present.

Roofers, deep sea anglers, aircraft test pilots — these kinds of jobs will likely increase your premiums because statistics show higher rates of on-the-job fatalities.

This shouldn’t be too surprising. But here’s one that might be more unexpected: Traveling salespeople typically pay higher premiums. Why? Because traveling so much increases the likelihood of being in a fatal car crash.

Underwriters spend a lot of time researching these kinds of questions so they can charge appropriately for your coverage and keep other policyholders from subsidizing your risk.

Hobbies and Habits

Your hobbies and habits will be relevant too. The insurance company probably wont care if you knit scarves in your free time or go play snooker every weekend. But if you’re a horse rider or SCUBA diver, your insurer might reconsider your rates.

As for habits, activities like smoking vastly increases your life insurance premiums.

If at all possible, quit smoking before you buy life insurance.

Some companies offer a lower rate for anyone who begins a smoking cessation program.

How Much Is A Million Dollar Life Insurance Policy?

Only the underwriting process will generate the actual cost for your million dollar life insurance policy.

But here are some ballpark numbers to give you an idea:

30-year Term Policy

  • 30-year-old woman with no health problems: about $48 a month
  • 45-year-old man with no health problems: about $167 a month

20-year Term Policy

  • 30-year-old woman with no health problems: about $28 a month
  • 45-year-old man with no health problems: about $92 a month

10-year Term Policy

  • 30-year-old woman with no health problems: about $20 a month
  • 45-year-old man with no health problems: about $50 a month

Guaranteed Universal Policy

  • 30-year-old woman with no health problems: about $365 a month
  • 45-year-old man with no health problems: about $560 a month

Of course, the costs would be much higher for smokers or anybody with an existing health condition.

Use our instant quoter below to see rates based on your actual information before you submit any personal data.

Your Instant Quote

This tool will give a significantly more accurate view of how much a million dollar policy might cost you compared to the general samples.

Complete your no-obligation application to get your final quote before purchasing.

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How Much Life Insurance Do I Need?

A 1 million dollar life insurance policy might sound like to much coverage at first, but once you start to break down the figures, you might see a million dollars wouldn’t be enough. Some people need two million, or even five.

Here’s some good news: Increasing coverage doesn’t increase your monthly premium as much as you might expect, as you could see in the instant quote tool above.

But how do you find the right coverage amount?

A good rule of thumb is to buy 10 to 20 times your income in life insurance coverage.

Customizing Your Coverage

Your exact coverage should consider your earnings, plus:

  • Your number of dependents
  • Your dependents future education plans
  • Any additional financial obligations, such as business debt
  • Your end-of-life expenses (typically $7,000 to $10,000)
  • Your family’s standard of living
  • Your future dreams: Homeownership, a vacation home, charitable giving, etc.

After doing the math, you may discover you don’t need a million dollar policy after all. If you’re a lower earner or you don’t have any children, $500,000 or less in coverage may be just fine.

Who Needs $1 Million in Life Insurance Coverage?

On the other extreme, if you:

  • Are a high-earner with an expensive lifestyle to maintain
  • Would like to leave a large inheritance,
  • Face an estate tax and need high liquidity
  • Are a partner in a small business…

…you may quickly discover you need a $5 million dollar life insurance policy – or even more.

Million Dollar Life Insurance as Philanthropy

Some people with philanthropic hearts like to name a charity as the beneficiary of their life insurance policies.

Giving life insurance coverage can net larger donations, and your estate could get a tax break — and the charity might get some extra publicity.

Best Million Dollar Life Insurance Companies

So you know how much coverage to buy, and you have a pretty good idea how much you’ll pay in premiums.

The next decision may seem even tougher: Which company should provide your million dollar policy?

With hundreds of life insurers competing for your business — and using their industry-specific jargon to confuse you — it’s normal to feel a little overwhelmed.

Here are some of the best providers of million dollar life insurance:

Haven Life: Best Overall

For fast and easy covearge, Haven Life is perfect.

You can complete the entire process online – you don’t even need a medical exam if you’re 45 or younger and have a clean health history.

Haven Life sells policies from MassMutual, one of the most established insurers in the market. So you’re getting the best of both worlds: traditional stability in a digital environment.

Haven has earned several accolades, including a top score on the Humans Rights Campaign Corporate Equality Index and the best rating for financial strength and claims-paying ability.

Rates start at less than $20 a month for million-dollar policies. You can apply for life insurance coverage up to $3 million.

To determine your eligibility, Haven Life underwriters will consider your income, the cost of health care for a non-working partner, your debts, the cost of children’s education, Social Security, child care, and funeral expenses.

To be eligible, you’ll need to be:

  • A U.S. Resident
  • Between 18 and 64 years old
  • Not in the military

You can’t use the policy to replace a previous policy or for a business, and Haven offers only individual term life insurance – no group life or permanent life options.

LEARN MORE: Read our full Haven Life review
GET A QUOTE: Use our instant quoter to see rates from Haven Life

Banner Life is an offshoot of Legal & General Group, a multinational insurance company. Banner uses different life insurance agents to sell its products. Men tend to spend a lot more money on life insurance than women, so Banner caters its coverage specifically towards men.

Unlike Haven Life, Banner lets you choose between term insurance (which lasts for a set number of years) and universal life insurance (which can last permanently). Banner also offers numerous riders, including coverage of children and the ability to access your death benefit before you die.

Your application can be approved over the phone with no medical exam or doctor’s records if you meet specific criteria.

Banner Life shines is in its treatment of most health conditions. For example, smokers who quit after buying coverage could still requalify for lower rates several years into their coverage. Most other companies lock in a premium based on your current tobacco status.

Banner Life does not sell policies in New York but shoppers can find very similar coverage with William Penn Life Insurance, another subsidiary of Legal & General.

TO LEARN MORE: Read our full Banner Life review

MetLife: Best for Permanent Life Options

You’ve heard of MetLife.

This huge multinational insurer offers both term life insurance and various permanent life insurance options, including universal life insurance.

There’s also a survivorship life insurance policy, which covers more than one life. Whatever you’re looking for, MetLife probably has it.

LEARN MORE: Read our full MetLife review

AIG: Best for Diabetics

AIG, another big name in the business, also has a full stable of products, from term to whole to universal life.

Rates start from just $14 a month for a $250,000 term life insurance plan, although, you’d need to be young and in excellent health to get such a low payment.

AIG is particularly well suited for anybody who has recently lost weight or been diagnosed with diabetes, but less than ideal if you have high cholesterol or a family history of heart disease or cancer.

LEARN MORE: Read our full AIG life insurance review

PolicyGenius: Best for Price Comparisons

Comparison shoppers will like PolicyGenius, especially if you’re not in perfect health.

Just to be clear: PolicyGenius does not provide insurance directly. Instead, the service helps you compare quotes from most of the big name insurance companies online, making it fast and efficient to find your best rate.

PolicyGenius has great educational content, too. You can learn about the terminology used to describe insurance policies, and there’s also an Insurance Checkup tool to check whether you have the right insurance and coverage for your needs.

LEARN MORE: Read our full PolicyGenius review

How Big a Life Insurance Policy Should I Take Out?

If you’re still unsure exactly how big a policy you need, you could check the life insurance needs calculator on Quotacy. Just enter some basic information about your assets, obligations, and future needs and Quotacy will suggest a coverage amount.

These tools can be a lot of fun to play with, and they’re a great resource. Just remember the calculator doesn’t include the cost of college tuition.

If you find you need a million dollars or more in life insurance coverage, you should be able to find it. If you’re a non-smoker who’s in good health, you should have several affordable choices for coverage.

The key is to buy coverage before you need it. When you lock in a decent rate while you’re still young, you’ll thank yourself later on in life.

Grant Sabatier

Grant Sabatier

Creator of Millennial Money and Author of Financial Freedom (Penguin Random House). Dubbed "The Millennial Millionaire" by CNBC, Grant went from $2.26 to over $1 million in 5 years, reaching financial independence at age 30. Grant has been featured in The New York Times, Wall Street Journal, BBC, NPR, Money Magazine and many others. He uses Personal Capital to manage his money in 10 minutes a month.
Grant Sabatier

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