Let’s be honest. A million dollar anything sounds like a pretty big deal, doesn’t it?
However, when it comes to life insurance, a one-million-dollar life insurance policy could actually be the bare minimum of what you need to protect your family. Or, it could be, once you crunch the numbers, you find that it’s entirely too much.
Regardless, let’s take a quick look at what a million-dollar life insurance policy really means.
Fun Fact #1. Think you need to be a millionaire to have a million dollar life insurance policy? A typical monthly premium for a million dollar life insurance policy starts at $30 a month.
A definition of terms.
First, let’s start with a few basics. Life insurance is a financial protection you provide to your loved ones if you die. Depending on your family’s stage of life, you may need more or less coverage.
Take, for example, newlyweds in their early twenties with a baby on the way, and then compare them to a retired couple with grown kids and sizable savings. If a spouse dies in either of these scenarios, the financial outcomes could be very different. The young couple may not have as much saved in the bank to cover their living expenses compared to the older couple.
In this example, the one-million-dollar death benefit might be more than enough for the retired couple. However, the newlyweds may see a need for a larger death benefit as they assess their obligations as a young and growing household.
Make sense? We thought so.
What life insurance ought to cover.
Common considerations to factor into your decision include mortgage payments, car payments, student loans, personal loans, credit cards and other debts. You should also consider everyday living expenses and future costs (like college tuition for the kids and retirement costs).
Depending on your circumstances, suddenly that big $1 million number can start shrinking.
Although $1 million seems like a nice, round amount when applying for a life insurance policy, it makes sense to take a more strategic path. Using a calculator to help you decide how much life insurance is appropriate for your situation will give you a better picture of how much money you need to support your loved ones if you die.
How much you pay per month for a million-dollar policy.
Typically, the premium for a million-dollar term policy starts at around $30+ a month and then goes up from there based on your age and health status.
Here are a few of the factors that affect the cost of the policy:
- Age
- Lifestyle factors (i.e., skydiving or smoking)
- Health
- Gender (women tend to live longer than men)
- Policy type (Term vs. Permanent)
Obviously this is very loose and unspecific, and the only way to know for sure what you might be paying per month is to talk to a qualified agent. You can also get started beforehand by using our Life Insurance Needs Calculator.
Fun Fact #2. The agents at the Hanna Agency have one objective, and that is to educate you about your insurance options. They are not trying to sell you anything — but they can certainly move that process forward, if that is what you would like.
A term million-dollar policy vs. a permanent million-dollar policy.
Let’s talk about the difference between “term” insurance and “permanent” insurance, from the perspective of someone who is purchasing a million-dollar life insurance policy.
A one-million-dollar permanent life insurance policy will be significantly more expensive than a term policy with the same face value.
Why is term insurance cheaper? It’s because term insurance policies have no accrued cash value and end after a certain amount of time (the “term”).
So, for example, let’s say you purchase a 20-year term policy for $1 million. (Nice!) You pay your monthly premiums for 20 years. At the end of the 20 year term, your policy would end. There would be no value attached to it after that. As mentioned before, perhaps you paid $30-$40 a month or so for that policy.
On the other hand, you may pay hundreds a month for a one-million-dollar permanent policy. But that policy will be, as the name suggests, permanent. If you keep it long enough, it will also accrue cash value that can be accessed — if needed.
Great. So now maybe your gears are turning a bit, and you’re leaning towards purchasing a million-dollar life insurance policy.
The next question you’d probably have is, “What’s the process for getting a policy?”
The insurance company offers you a life insurance policy only if you are considered a reasonable risk for them. The way the insurance company determines this is through a process called underwriting. They’ll ask you health questions, do a medical exam and/or obtain medical records from third-party sources.
A million-dollar policy will require a medical examination.
Some insurance companies advertise “no medical exam needed” for their insurance plans. However, these are typically for policies with a lower face value than a million dollars.
Express policies with no exams can sometimes go up to $300,000, but any higher, and you’re looking at more scrutiny to get underwritten. Perhaps you may even be able to find a company or two that offers up to $1 million with no medical exam. But even with these, there is a good chance that you won’t get through the whole process without a follow-up exam.
Knowing what a million-dollar life insurance policy means in today’s market and in today’s dollars is an important benchmark to understand. It’s a good starting point for making your own decisions on life insurance. Then, your next step should be to dive deeper into your own needs and find the insurance product that is right for you.
Finally, if you are looking for help in this process, we recommend speaking with an independent insurance agent. As a licensed professional, an agent can help you compare products and insurance companies so you can find the best solution for your situation.
The Answer to the Big Question.
What does a million dollar life insurance policy get you? Well, beyond a million dollars, it also gets you something intangible. Owning a life insurance policy with a “million-dollar payout” can give you a sense of comfort and stability in a world that can sometimes feel unstable and unpredictable. (Plus you get to walk around and tell people you have a “million-dollar life insurance policy.” Kind of cool.)
But don’t take our word for it. This site is full of Real Life Examples of people who have gone through the worst case scenarios, and come out of them singing the praises of Life Insurance.
So what do you think? Is it worth it? Do you see yourself as someone who owns a million-dollar life insurance policy? If not, why not?