Luis Pazos 
Are you wondering if a million-dollar term life insurance policy is too much? As a Certified Financial Planner, I often see people who are underinsured. Surprisingly, a million-dollar policy might be just the right amount for a typical middle-class household, and it’s more affordable than you might think.
You might think a million dollars sounds like an exaggeration, but once you crunch the numbers, you’ll see why it might be necessary. Fortunately, term life insurance isn’t as expensive as many people assume. Bigger policies often cost less per thousand dollars of coverage compared to smaller ones. For example, a $1 million policy might have a similar premium to a $500,000 policy.
Do You Really Need a $1 Million Term Life Insurance Policy?
Probably yes, but let’s dive deeper. A common guideline is to have life insurance coverage that’s 10 times your income to ensure your family’s financial security. If you’re younger, you might even need coverage to replace your income for 15 years or more. Today, $1 million has become a new baseline for primary breadwinners to ensure their family isn’t left financially strained.
Calculating Your Insurance Needs
Here’s a list of obligations your life insurance should cover if the worst happens:
- Replace your income (for several years)
- Cover final expenses
- Settle any debts
- Account for future obligations like college for kids
- Address other obligations like business debts
You can subtract current life insurance policies and certain assets when calculating how much coverage you need.
Choosing a Million Dollar Insurance Policy
Policy Genius states that the average cost for a 20-year $1 million term life policy for a 35-year-old male is around $53 per month. Your actual rate will depend on factors like your age, health, gender, hobbies, and the policy term and amount.
Where to Start
The easiest starting point is online. It’s wise to compare rates from two or three insurers to get the best deal. Choosing your state can help you find top life insurance providers quickly.
Factors Affecting Your Insurance Needs
Income Replacement
Replacing your income could require close to $1 million. The general recommendation is a policy that’s 10 to 20 times your annual income. For instance, if you make $50,000 a year, you should have coverage between $500,000 and $1 million. However, with low-interest rates today, you might need more.
Using a simple formula: multiply your annual income by the number of years you need to cover living expenses. This can quickly add up to a $1 million policy. Most insurers have a cap, often based on your age and income, to prevent over-insurance.
If a 35-year-old makes $150,000 per year, they could apply for a maximum policy of $4.5 million ($150,000 x 30).
Final Expenses
This includes funeral costs and settling any medical costs. Funerals can cost around $20,000. Burial insurance can cover basic final expenses.
Outstanding Debt
Many people use life insurance to cover debts like credit card debt or mortgages. The average mortgage balance is approximately $236,443.
Future Family Obligations
Expenses like college tuition are significant. For instance, tuition at an in-state public college can cost around $20,770 annually.
Transportation and health insurance are other significant expenses. The average cost of family health insurance is around $22,221 annually.
Lesser-Obvious Obligations
If you own a business or real estate, you might need life insurance to cover business obligations or to stabilize your properties financially.
Premium Factors
Key factors include age, health, policy term, and size, as well as your job and hobbies. Older age and poorer health typically mean higher premiums. Longer-term policies cost more but provide more extended coverage. Larger policies are more cost-effective per thousand dollars of coverage.
$1 Million Term Life Insurance vs. Whole Life
Whole life insurance is more expensive but has benefits like building cash value and paying dividends. Term life is generally more affordable and better for young families needing significant coverage on a budget.
Rates for $1 Million Policies (Examples)
- A 25-year-old male might pay $645 annually for a 30-year term policy.
- For a 20-year term, a 25-year-old male could pay $414 annually.
- Smokers should be aware that their premiums are significantly higher.
Steps to Securing a $1 Million Policy:
- Determine the coverage you need.
- Choose the right policy type—whole, term, or Universal.
- Shop around and compare rates.
- Consider your health and lifestyle.
- Get quotes from multiple companies.
- Read the fine print thoroughly.
- Opt for online purchases for better rates.
- Ensure you can manage the payment schedule.
- Review your policy regularly as life changes.
- Repeat—comparison shopping is crucial.
Top Companies for $1 Million Policies:
Choose financially stable companies with good customer service and claim-paying ability:
- Northwestern Mutual
- New York Life
- MassMutual
- Guardian Life
- State Farm
- Nationwide
- USAA
- MetLife
- The Hartford
- Allstate
Bottom Line:
A million-dollar term life insurance policy is more affordable than you might think. Start comparing quotes today, especially while you’re young and healthy. Even higher-cost permanent policies might surprise you with their affordability.
FAQs about $1 Million Policies:
The cost varies by age, health, and lifestyle. For a healthy 30-year-old, it can be around $250 per year. These policies offer significant benefits for protecting your family’s financial future and covering debts like a mortgage or student loans. While some might not qualify due to severe health conditions or inability to afford premiums, for most, it’s a sensible decision. Top providers include AIG, Banner Life, and Prudential. Some companies also offer no medical exam policies, though at higher premiums.
