For many of us, the idea of having a million dollars is hard to grasp — it just seems too big to be real. Would that million dollars be enough to cover your family’s expenses if you passed away? A million dollar life insurance policy might seem like more than enough coverage but is it?
Million-dollar policies are often touted as the best option for everyone. However, you might find that it’s far too much or too little for your unique financial situation. This article will help you decide if a million-dollar plan is right for you.
What is a million dollar life insurance policy?
Getting life insurance is an important step in securing your financial future. You can define a life insurance policy by its death benefit.
A death benefit is the amount your beneficiaries receive at your death. A million dollar life insurance policy is simply any policy with a death benefit of $1,000,000.
Types of life insurance
A 1 million dollar life insurance policy isn’t limited to a certain type of life insurance. There are several types of life insurance to choose from. They’re generally divided into two groups:
- Term insurance
- Permanent insurance
A term life insurance policy covers you for a set number of years, known as the policy’s term. The most common terms are 10 years, 20 years, or 30 years.
Term policies make for straightforward life insurance. You pick the death benefit and length of the policy. As long as you pay the premiums each month, you’re covered until the term runs out.
At the end of the term, your policy expires and you’re no longer covered. Term life insurance is a popular choice.
According to 2020 data from the American Council of Life Insurers (ACLI), 4.2 million new individual life insurance policies were term insurance.
These plans made up 41% of new individual policies. Some reasons people choose term life over permanent policies include:
- Term policies are less expensive than permanent life insurance.
- Length of term and death benefit are customizable to fit your needs.
- You can renew or convert your policy when the term expires.
- Your premiums stay level or increase at specific intervals, such as every five years.
A permanent life insurance policy stays in effect your entire life, so long as you pay your premiums. Permanent policies also involve a savings component, known as cash value. Part of your premium goes into a dedicated cash value account.
This money earns interest and some cash value accounts let you invest the funds. You can use your cash value to pay your life insurance premiums from the cash you’ve saved up in the account. Permanent life insurance gives you benefits like:
- Earns cash value over time.
- Lifelong coverage, so long as you pay your premium.
- Guaranteed coverage regardless of changes to your health.
- Your premiums are set and won’t increase over the life of the policy.
How much does a million dollar life insurance policy cost?
So, how much does a million dollar life insurance policy cost? Well, it depends. Higher death benefits usually mean higher premiums.
Other factors can also play a role in your total costs. Despite having the same death benefit, the cost of 1,000,000 life insurance can vary a lot. If you’re considering 1,000,000 life insurance, consider all the factors that affect costs.
What factors affect the cost of life insurance?
Insurance companies check several risk factors to determine your costs. They’re looking to cut the cost of insuring a large group of people.
People who are young and healthy are at a lower risk. It shouldn’t surprise you that your health is the most important factor.
This includes common health-related factors like your age, gender, weight, and medical history. Other factors play a role in a million dollar life insurance policy cost as well, including:
- Length of term
- Type of insurance
- Driving record
- Nicotine use
- High-risk hobbies
- Family medical history
- Dangerous occupations
Length of Term
If you decide a term 1 million dollar life insurance policy is right for you, your costs change based on how long you want your policy to be active. Longer terms often cost more.
Type of Insurance
The type of life insurance policy you choose will change the cost of your premiums. Permanent life insurance has higher premiums than term policies.
Many insurers will look at your driving history. Drivers with fewer accidents or traffic tickets are less risky to insurance providers. Safe drivers with clean driving records are less likely to be in a fatal accident.
According to the CDC, smokers have a life expectancy that’s at least 10 years shorter than non-smokers. Insurance providers take this into account when approving a life insurance policy.
Tobacco users often have to pay higher premiums for coverage. Long-term nicotine users could have trouble finding a policy at all.
The things you enjoy doing on your time off could increase your life insurance costs. People who engage in high-risk activities usually pay more for life insurance. So be prepared for increased costs if you enjoy mountain climbing or skydiving.
Family Medical History
Your family medical history could increase your insurance costs, regardless of your health. Insurance companies look for hereditary diseases or conditions when reviewing your insurance application.
Like risky hobbies, a dangerous profession could lead to higher insurance premiums. Some lines of work are more dangerous than others.
Life insurance companies take this into account when deciding your insurance costs. Dangerous occupations include electric line installation, police work, and mining.
Who should get a million dollar life insurance policy?
The right amount of life insurance is different for everyone. That’s especially true when considering higher death benefit amounts. Not everyone needs a million dollars in coverage.
Life events, like getting married or buying a house, can change your financial needs. Likewise, you may need more coverage if you earn a significant salary. For example, people who need a 1000000 life insurance policy might include:
- A married couple where one spouse makes a six-figure salary while the other stays home.
- A couple looking to protect their children’s higher education funds.
- A small business owner who wants their family to be able to cover the outstanding business debt.
- A spouse who has a large amount of student loan debt.
- A family who has a large mortgage on their home.
Who qualifies for a million dollar life insurance policy?
Not everyone qualifies for a 1 million dollar life insurance policy. Life insurance replaces your income to cover your loved one’s financial needs when you pass.
To qualify for a larger death benefit, you have to justify why you need more coverage. Life insurance companies use your current salary, age, and health to determine your eligibility.
Some insurers will approve a death benefit that’s up to 30 times your annual salary. In that case, you’d need to make about $34,000 per year to be eligible.
Your age is also a factor in approval for a 1 million dollar life insurance policy. Younger people tend to qualify for larger death benefits. Someone young is less likely to need their life insurance benefits anytime soon.
Finally, your current health — and medical history — will affect your approval odds. If you’re healthy, you’re more likely to get approved for a million dollar policy. Most high-dollar policies require a medical exam before approving your application.
How to decide if a million dollar life insurance policy is right for you
It can certainly feel like more is better when it comes to life insurance, but that’s not always the case. Life insurance benefits should replace your income and cover debts if you pass away.
If your earning potential and debts are less than $1 million, you might not need that much coverage. On the other hand, a million dollars can sound like a lot, but it may not be enough.
It might surprise you to learn how many expenses your family faces. Weigh your potential expenses with the cost of premiums for a million-dollar policy. You want to find a balance between enough coverage and affordable cost.
How to calculate your life insurance needs
The simplest way to decide how much life insurance you need is to multiply your annual income by 10-30.
Of course, this method doesn’t go into detail. It can, however, be a great place to start when deciding how much life insurance to buy.
Once you have a loose idea of how much insurance you need, you can start factoring in your individual needs.
Add up the estimated cost of each obligation to get a more precise idea of your insurance needs. Some factors to consider include:
- Outstanding debt, such as credit card debt or student loans
- Business expenses, such as business loans and operational costs
- Final expenses, including funeral and burial expenses
- Day-to-day expenses for a spouse or children
- Future expenses, such as education costs for children
Using a life insurance calculator
Looking for an easier way to calculate your life insurance needs? Modern technology makes it a lot easier to find the right amount of coverage. You can use online life insurance calculators to quickly estimate your needs.
An easy-to-use calculator is this one from Life Happens. This nonprofit’s mission is to help families make smart insurance choices.
How to shop for a million dollar life insurance policy
Shopping for a 1 million dollar life insurance policy is much like shopping for any type of life insurance. You should plan to shop around for the best fit before committing to a plan.
Comparing policies and insurance providers gives you a better chance to get a policy that’s right for you. You could also end up saving money by shopping around.
What to look for when shopping for a million dollar life insurance policy
Million-dollar plans are usually more expensive than those with lower death benefits. Be diligent when shopping to find a policy — and insurance provider — that serves your needs. Look for these things when comparing policies:
- Good provider rating
- Premium costs
- Medical exam requirements
- Renewability or convertibility
- Optional riders
Picking a good life insurance company is an important part of shopping for life insurance. There are several ratings you can use to help you decide if a company is a good fit.
Start by reading reviews of the company to see what current or previous customers have to say. You can also look at the Better Business Bureau to see recent complaints against the company.
The financial security of the company should also be a big priority. After all, you want to know your insurer can pay your claim, especially if it’s a higher amount like a million dollars. You can look up financial strength ratings from independent agencies.
The cost of life insurance is always going to be a big factor in the policy you choose. While you shouldn’t base your whole decision on cost alone, you also don’t want to overpay for coverage.
Collect life insurance quotes for similar policies from multiple providers. Comparing quotes lets you find the best combination of coverage and cost savings.
While term insurance policies expire once the term is up, many are renewable. A renewable policy means you can renew the same policy for a new term.
One big benefit is you won’t have to take another medical exam, which could be helpful if your health has declined.
Another term insurance option is a convertible term policy. These policies let you convert your policy into permanent life insurance at the end of the term.
This can be a great way to get affordable coverage when you’re younger and guarantee coverage when you’re older.
Life insurance policies often let you add optional coverage, called riders. A rider is an extra benefit for your policy. A common option is an accelerated death benefit (ABD) rider.
This lets you access your death benefit while you’re still alive. For example, you can use ADB coverage to help pay for treatment of a chronic or terminal illness, like cancer.
Determine if a million dollar life insurance policy is right for you
Choosing the right life insurance policy for your needs is a very personal decision. There’s no one-size-fits-all answer to protecting your loved ones’ financial future.
You can find the best fit for your family by taking the time to research potential policies. Be sure to ask insurance agents about the details of a 1,000,000 life insurance policy you’re thinking of buying.