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Million Dollar Life Insurance Policy
A million dollars worth of life insurance may seem extravagant, but many people may need that much coverage to support their family’s needs or their financial goals. Most people in the U.S. who have life insurance are actually underinsured. When you add up all of your current debts, your family’s regular living expenses and future financial obligations such as college tuition, you might just find that you actually need that million dollar policy.
A million dollar life insurance policy may not be as expensive as you think. If something should happen to you and your family needs to carry on, would an estimated $30 to $100 monthly premium for a $1 million term policy be worth it to you? To review a range of life insurance options and rates, contact an independent agent in the Trusted Choice ® network. One of these agents can help you compare quotes and find the most suitable coverage to protect your family.
Cost of Living Statistics
- The average cost of college tuition and fees for the 2012–2013 school year was $29,056 at private colleges
- In 2012, the average cost of a funeral was $8,565
- The average cost of a home in February 2013 was $152,000
- In 2012, the average cost of childcare in Massachusetts was $15,000
- In 2012, the average credit card holder in the U.S. had a debt of $15,162
What Is a Million Dollar Life Insurance Policy?
A million dollar life insurance policy is a contract with a face value of a million dollars made between you and the insurance company. The contract comes into effect when they receive your first premium and remains in effect for the duration of the contract, as long as you continue to pay your premiums.
If you die during the terms of the contract, your named beneficiary will receive a million dollar lump sum payment from the insurer. Unless you name your estate as your beneficiary, or purchase the policy as a third party, these insurance proceeds will also be non-taxable by the IRS or state agencies. When buying such a large policy, it is advisable to discuss the details with your financial or tax advisor so that you fully understand all financial ramifications.
How Much Does a Million Dollar Life Insurance Policy Cost?
The cost of a million dollar life insurance policy takes into account a number of variables. The first of these variables is the type of policy you buy. You have two types of life insurance to choose from:
- Term life insurance: Term life insurance is the most affordable form of life insurance available. It covers death benefits only. You purchase a term policy for a period known as a “term.” A term can be just about any period of time you set with your insurance company; it could be 1, 5, 10, 15, 20, 25 or 30 years, for example. The premiums are typically fixed for the life of the term. This type of policy is renewable and most insurers allow you to convert a term policy to a permanent policy such as whole life or universal life.
- Permanent life insurance: Permanent insurance comes in three basic types of policies: whole life, universal life and variable life insurance. There are a variety of these policies available in varying formats offered by insurance companies so you should always review policies closely to understand what you are buying. These policies are more expensive than term life policies because, in addition to the death benefits, they also have a cash value accumulation feature.
Life insurance underwriters use algorithms to determine how much your premium will cost, and these are based on a wide range of factors, including:
- Your gender
- Your age
- Whether you are a smoker
- Your health profile
- Your lifestyle
- Your family history
- Your occupation and your hobbies
- The results of your medical exam
The following are sample premium costs for a $1,000,000 20-year term life insurance policy for “preferred plus” rates for males and females who are non-smokers and in good health.
What Are the Features of Million Dollar Life Insurance?
The features of a million dollar policy depend on the type of the policy you purchase. With a term life insurance policy, you are insured for the period of the term you purchased, such as 20 years.
Although this type of policy is also renewable, it can be significantly more expensive to renew because you will have aged 20 years since the original purchase, and the premium increase will reflect this age difference. You may also have the option to convert the policy to a permanent policy and may not be required to take a medical exam.
With a permanent policy you are covered for your entire life. Not only would your beneficiary receive the death benefits, or “face value” of the life insurance policy, but you are also accumulating a living benefit – the cash value that accumulates in the saving/investment component of your policy.
After a certain length of time, and depending on the policy and the insurer, you can also borrow against the cash value of the policy. You can borrow these funds as a non-taxable withdrawal. If you do not repay the amount you borrowed, your death benefits will be reduced accordingly.
Does a Million Dollar Life Insurance Policy Make Sense for You?
Only you can decide whether a life insurance policy of this size makes sense for you, but you can do a self-inventory in order to make a good choice. The two main factors you should consider include both your current financial needs and future financial obligations. A million dollar policy could make sense if you need it to cover all your current debts such as a mortgage, personal loans and credit cards. Also factor your loss of income, the funds needed to pay for your children’s college education and the annual cost of living for the people in your household.
The rule of thumb suggested by most experts is that the minimal amount of life insurance should be equivalent to between 5 and 10 times your current gross annual income. You should basically consider all your financial obligations and deduct your current investments and assets, as well as the impact of the loss of income for the household, when determining the amount of life insurance that makes sense for you.
To get help with assessing your life insurance needs, speak with an independent life insurance agent in the Trusted Choice network. These agents provide unbiased information, as they work with multiple life insurance companies and do not promote any one insurance company’s products. An independent agent will help you evaluate options that meet your needs so you can make an informed choice.
How Does a Million Dollar Life Insurance Policy Work?
After you have determined the type of the policy you wish to buy, your next step is to fill out an application with the help of your life insurance agent. The agent will then submit the application to the company you have chosen. The insurance company will set up a medical appointment for you.
Once the life insurance underwriter reviews the results of the medical exam, you will receive your policy contract and premium rates. The policy will go into effect once you sign the contract, return it to the life insurance company and make your first premium payment.
What happens then? You may be aware of something called a “two year contestability period.” This is a time period during which the life insurance company may investigate any claims you may have made – regarding your current health status, for example – and decline your coverage if you falsified information. It begins the date that your policy goes into effect and lasts two years. It simply means that you must be truthful when you answer questions asked of you, or risk not having that policy pay out when you need it. After the two-year period, the life insurance company cannot rescind your policy unless you are not paying your premium.
Again, your beneficiaries will still receive the death benefits of your policy during the contestability period. If you die a day, a week, a 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 have only paid $100 on a $1 million policy, the entire benefit goes to your beneficiary.
Get Help with Your Life Insurance Choices
A million dollars might seem like a large policy. However, when you look at your overall financial picture, factor in how much money would no longer be available to support your family and the expenses you are leaving behind, a million dollar life insurance policy might make more sense.
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 agent in the Trusted Choice network can help you by gathering quotes from multiple life insurance companies based on your specific needs.
Contact a local member agent today to compare million dollar life insurance quotes and learn how to make sure your family is financially secure.