Do you think a million-dollar term life insurance policy sounds like too much insurance?
A million-dollar term life insurance policy might actually be the minimum coverage needed for the typical middle-class household.
That might sound like an exaggeration, but if you crunch the numbers – just as we’ll be doing a little bit – you’ll realize that a million dollar policy is perfectly reasonable. In fact, you might even find that it isn’t enough. Don’t be intimidated by the size of the policy.
You might be thinking There’s no way I could ever afford $1 million in life insurance.
You’ll be surprised to learn just how affordable that much life insurance coverage can be.
Life insurance – at least term life insurance – isn’t nearly as costly as most people think.
What makes it an even better deal is that larger policies cost less on a per thousand basis than smaller policies do. You may find the premium on a $1 million policy is only a little bit higher than it is for $500,000.
Before you draw any early conclusions, read through this article and check out the premiums on $1 million in term life insurance at different ages.
Do You Really Need a Million Dollar Term Life Insurance Policy?
Yes, a million-dollar life insurance policy sounds like an awfully big number. But this is mostly by comparison to the amount of life insurance people carried in the past. For example, 20 years ago a $500,000 policy was sufficient for most middle-income families. And 40 years ago, $100,000 would have got the job done.
But this isn’t the 1990s or the 1970s anymore. Costs have increased substantially, particularly those that are most likely to be incurred by the typical household.
In today’s cost structure, $1 million has become the new baseline for life insurance by a primary breadwinner. Anything less could leave your family financially impaired.
Let’s look at the individual components of why such a seemingly large policy is needed.
1. Your Final Expenses
Here we start with the basics – wrapping up your final affairs.
This will include funeral costs and any lingering medical costs. A reasonable estimate for a typical funeral is around $20,000.
It can be less or a lot more, depending upon where you live and the customs in your family and community.
But we’ll use that as an average. Medical costs are a serious variable.
Even if you have excellent health insurance, there are likely to be unpaid medical bills lingering after your death. This has to do with copayments, deductibles, and coinsurance provisions.
Collectively, they can add up to many thousands of dollars. But where things get really complicated is if you die of a terminal illness.
For example, if you are stricken by an illness that lasts for several years, you could incur a number of expenses that are not covered by insurance. This may include the cost of personal care and even experimental treatments.
These are not unusual in situations involving a terminal illness. They can amount to tens of thousands of dollars.
But when combined with funeral costs, you could be looking at a minimum of $50,000 to cover your final expenses alone.
And we haven’t even gotten into providing for your family after your death.
2. Income Replacement – Providing for Your Family’s Basic Living Expenses
This is where things can get a bit intimidating. Even if you earn a modest income, you may need close to $1 million to replace that income after your death.
The conventional wisdom in the insurance industry is that you should maintain a life insurance policy equal to between 10 times and 20 times your annual income.
If you earn $50,000 per year, that would mean a policy of between $500,000 and $1 million.
The complication today is that with interest rates being as low as they are that might not be enough either.
For example, if you have a $1 million policy that could be invested at 5% per year, your family could live on the interest earned – which conveniently comes to $50,000 per year – for the next 20 years.
That would still leave the original $1 million intact to cover other expenses. But with today’s microscopic interest rates, there’s no way to get a guaranteed return of 5% on your money, certainly not for 15 or 20 years.
That brings us back to simple math – multiplying your annual income times the number of years your family’s living expenses will need to be covered. This alone can require a $1 million life insurance policy.
3. Major Costs Your Family Is Likely To Incur After Your Death
Below is a sampling of major expenses your family is likely to incur, either on an annual basis or at some point after your death.
- Median price of a new home: $314,800
- Median price of an existing home: $276,900
- Annual cost at in-state public college: $20,770 ($83,080 for four years)
- Annual cost at out-of-state public college: $36,420 ($145,680 for four years)
- Annual cost at a private college: $46,950 ($187,800 for four years)
- Average cost of a new car: $35,285
- Average health insurance premium for a family: $18,764
We’ve included new homes because families often relocate following the death of a breadwinner.
Alternatively, you may want the mortgage on your current home paid. And you can fully expect a new car will be needed every few years. College costs are a serious variable.
If you have one child who attends an in-state public school, a second at an out-of-state public school, and a third in a private university, the total expenditure will reach $416,560.
That’s more than 40% of your $1 million life insurance policy right there!
Health insurance premiums can’t be ignored. If your family is covered through your employer plan, they may need private health insurance following your death.
The number presented is the national average for a family policy, and can vary based on your state. And you can rest assured premiums will only be higher in the future.
With the exception of health insurance, the other costs on this list aren’t even part of ongoing living expenses. They’re those major expenses that are guaranteed to pop up at least every few years.
And they can easily eat up the majority of your $1 million life insurance.
4. Other Contingencies You May Need to Cover
So far, we’ve been describing the financial obligations likely to affect a typical household.
But there may be certain situations that will produce obligations that are less obvious.
For example, if you’re a business owner, there may be debts or other financial obligations that will need to be paid upon your death.
Even though no one in your family may be qualified or interested in taking over your business, the payoff of those obligations may be completely necessary to enable the sale of the business.
Another possibility is that you’re a real estate investor.
If your properties are heavily indebted, extra insurance proceeds may be necessary either to carry the properties until they’re sold, or even to pay off existing indebtedness to free up cash flow for income.
You may even need additional funds if you are taking care of an extended family member, like an aging parent.
These are just some of the many possibilities of expenses that will need to be covered by insurance proceeds.
Summing Up the Need for a Million Dollar Term Life Insurance Policy
The purpose of breaking out the above expenses isn’t to scare you into buying life insurance.
But it is to demonstrate the potential possible financial obligations you may need to cover through a life insurance policy.
That’s why we recommend a minimum of $1 million in coverage.
It’s seems like an impossibly large number, but it’s completely necessary based on today’s cost structure.
For many people, particularly those with above-average incomes, or higher than expected expenses, a $1 million life insurance policy will be totally inadequate. If you’re in one of those situations, a policy of $2 million or more will be more appropriate.
Best Companies for Million Dollar Policies
For most people the best company to get a life insurance policy is the one that has a good financial backing and gives you the best price.
There are a few companies that stand out for specific needs.
Haven Life – Fastest and Easiest Process
Haven Life allows you to purchase a policy completely online. If you are in good health then you will most likely get a policy without having to go through a physical exam.
They have unique technology that allows them to underwrite without a medical examination and this makes the Haven Life policy process easy and super fast without sacrificing price.
Banner – Best for Men
Men tend to purchase much more life insurance coverage than women do. How much? The average face value of a life insurance policy on a man is 45% larger than the average policy for a woman.
Because of this and that historically men buy life insurance more frequently than women, Banner Life has targeted the male market for policies and they do a great job of underwriting men.
PolicyGenius – Best for High Risk
PolicyGenius is not a life insurance company, but they are able to get you quotes from multiple companies at one time. This makes them very valuable for anyone that may end up with a less than perfect health rating.
Since each company evaluates a persons health slightly differently some companies are better for specific health conditions than others. Getting a large number of quotes from different companies can mean a huge savings.
Why Term Life Insurance – Why Not Investment-type Life Insurance?
Should you buy life insurance that builds investment value, or “buy term and invest the difference?”
Most times, the debate is settled in favor of term life insurance. It’s not just cheaper, but much cheaper.
How much cheaper?
The typical investment-type insurance policy will cost anywhere from 5 to 10 times more than a term policy will.
If the annual premium is $300 to buy a $200,000 term life policy, it may be as much is $3,000 for an equivalent amount of whole life insurance.
Investment-type life insurance – whole, universal, variable – may have certain value as far as cash value accumulation, but they’re simply too expensive for the typical consumer.
The best example is a young family
A couple with young children is at the time of maximum life insurance need. Since the children are young, a lot of insurance will be needed to provide for their support should one of the parents die.
But it’s also a time of tight budgets. Parents may be relatively early in their careers, and not enjoying peak earnings.
At the same time, expenses are high.
This includes costs for food for a family, childcare, heavy use of health care, and the seemingly endless demand for clothing, furniture, and even entertainment as the children grow.
There’s not enough room in the typical family budget to afford the type of life insurance that’s needed.
This is a classic situation where term insurance rides to the rescue. The family can afford to buy a much larger policy at much more affordable premium.
And just as important for people of any age and in any circumstance, the extra funds not being spent on insurance premiums can be invested to gradually improve your financial situation.
So absolutely, term insurance will work best for most people.
Factors Affecting Life Insurance Premium Rates
Before we move on to specific life insurance quotes, let’s first consider the factors that affect term life insurance premiums.
Age. This is typically the single most important premium factor. The older you are, the more likely you are to die within the term of the policy.
Health. This is a close second and why it’s so important to apply for a policy as early in life as possible. Premium rates literally increase by each year.
If you have any health conditions that may affect mortality, such as diabetes or hypertension, your premiums will be higher. This is another compelling reason to apply while you are young and in good health.
It’s not that policies are not available to people with health conditions, it’s just that they’re less expensive if you don’t have any.
Policy term. A 10-year term policy will have a lower premium than a 20-year term policy, which will be lower than a 30-year term. The shorter the term, the less likely it is the insurance company will have to pay a claim before it expires.
Policy size. Size of the policy matters, but not the way you might think.
Yes, a $1 million policy will cost more than a $500,000 policy. But it won’t cost twice as much.
The larger the policy, the lower the per-thousand cost will be.
When the size of the death benefit is considered, the larger policy will always be more cost-effective.
Work, hobbies and habits. For example, certain occupations are more hazardous than others (think policeman versus librarian). Deep-sea diving is higher risk than golf. And smoking is the one activity guaranteed to raise your premiums substantially.
With this information in mind, let’s get onto the term life quotes.
About The Term Life Quotes
As you’ll notice, each table has a wide array of information. Knowing that everybody is in a different situation, I wanted to make sure that I offered quotes for almost every conceivable situation.
I’ve included quotes for 30-year term, 20-year term, and 10-year term. If you’re a tobacco user, I’ve also included some quotes from life insurance for smokers.
30 Year Term Life Quote One Million Dollars
For those that think that a million dollar term policy is expensive, you’ll quickly notice that for a 25-year-old male in good health only costs $645 per year with a 35-year-old costing $795.
On a monthly basis that’s almost next to nothing!
|AGE||SEX||COMPANY 1||COMPANY 2||COMPANY 3|
|NORTH AMERICAN CO.|
|NORTH AMERICA CO.|
20 Year Term Life Quote One Million Dollars
There is a big drop off in price between a 20 year and a 30year since underwriters do not have to worry as much about life expectancy.
For many people a 20-year policy gets them exactly where they want to be in life when the policy term runs out.
|AGE||SEX||COMPANY 1||COMPANY 2||COMPANY 3|
|NORTH AMERICA CO.
10 Year Term Life Quote One Million Dollars
Once again, you get a $200 drop in the annual premium by losing another 10 years on the term.
If your life insurance agent isn’t giving you all these term options and is only focused on the death benefit, then you need a different agent.
|AGE||SEX||COMPANY 1||COMPANY 2||COMPANY 3|
Smoker Term Life Quote One Million Dollars
For all you smokers out there – beware! The cost of your life insurance balloons as you’ll see here. If you’re considering kicking the habit, now is as good time as any.
Some life insurance companies will give you a lower rate if you complete a recognized smoking cessation program, and you go without smoking for at least two years.
It won’t help your immediate situation, but when you see the premium rates below, you might agree that it’s something to work toward!
|AGE||SEX||COMPANY 1||COMPANY 2||COMPANY 3|
|35||MALE||North American Co.|
|35||FEMALE||North American Co.|
Getting a one million-dollar term life insurance policy is not as expensive as most people believe.
Even those who opt for the more expensive permanent life insurance policy will many times be surprised at the price.
Either way, you can get these larger amounts of coverage and still not break the bank. But get your policy now, while you’re still young and in good health.