A million dollar life insurance policy may seem excessive and extravagant. However, many people may need as much coverage to provide for their family’s needs and goals.
When you calculate all of your present debts, your family’s current standard of living and future financial needs like college tuition, you might just discover that you actually need that million dollar policy.
A million dollar life insurance policy may not be as expensive as you assume it to be. In the event that something happens to you and your family needs to move 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 agents that can help you compare quotes and find the most suitable coverage to suit your family needs.
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 between a client [you] and the insurance company. The contract takes effect when they receive your first premium. This lasts for the duration of the contract, as long as you keep paying your premiums.
If you die within the terms of contract, your beneficiary will receive a million dollar lump sum 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 state agencies or the IRS.
Before you purchase such a large policy, you should discuss the details with your financial advisor so that you can understand fully all financial ramifications.
How Much Does a Million Dollar Life Insurance Policy Cost?
There are so many factors to take into consideration when calculating the cost of a million dollar life insurance policy. The No.1 factor is the type of policy you buy. There are two types of life insurance policy:
Term life insurance:
This is the most affordable form of life insurance available. It only covers death benefits. You purchase a term policy for a period of time called a “term”. A term can be just anything from 1, 5, 10, 15, 20, 25 or 30 years or more, for example. The premiums are typically fixed for the life of the term. This policy is renewable and most insurance companies allow you to convert a term policy to a permanent policy.
Permanent life insurance:
This comes in three basic types of policies: whole life, universal life and variable life insurance. There are a variety of these policies available in different formats offered by insurance companies. So you should always review policies closely to understand what you are purchasing. These policies are more expensive than term life policies. This is 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 whole lot of factors, including your:
- Age
- Gender
- Health profile
- Lifestyle
- Your family history
- Whether you are a smoker
- Your occupation and your hobbies
- The results of your medical exam
What Are the Characteristics of a Million Dollar Life Insurance policy?
The features of a million dollar policy depends on the type of policy you buy. With a term life insurance policy, you are only insured for the period of the term you purchased.
Although this type of policy is also renewable, it could be more expensive to renew. This is because you will have aged 20 years since the original purchase. Thus, 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 the rest of your 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 investment component of your policy.
After a certain period of time, and depending on the policy and the insurance company, 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?
You can do a self-inventory to decide whether this size of life insurance makes sense for you. The two main factors you should consider are: your current financial needs and future financial obligations.
A million dollar policy could make sense if you need it to cover all your present debts such as a mortgage, personal loans, credit cards etc. Also consider your loss of income, the amounts needed to pay for your children’s college education and the annual cost of living for your family members/dependents.
Experts have suggested that the minimal amount of life insurance should be equivalent to between 5 and 10 times your current gross annual income.
You should also consider all your financial duties and subtract your current investments and assets, as well as the impact of the loss of income for the household, when deciding on the amount of life insurance that makes sense for you
How Does a Million Dollar Life Insurance Policy Work?
When you have decided on the type of the policy you wish to buy, your next step is to fill out an application in consultation with your life insurance agent. The agent will submit the application to the company you have chosen or you can do that yourself. The insurance company will then set up a medical appointment for you.
Once the life insurance underwriter reviews your medical result, you will receive your policy contract and premium rates. The policy will take effect once you sign the contract, return it to the life insurance company and make your first premium payment.
What next? There is something called a “two year contest-ability period”. This is a period during which the life insurance company may investigate any claims you may have made – regarding your current health status, your age etc – and decline your coverage if you falsified information.
It commences from the date that your policy goes into effect and lasts two years. This implies that you have to be truthful when answering questions that have been asked of you or risk not having the policy pay out when you need it. After the two-year period, the life insurance company cannot cancel your policy unless you are not paying your premium.
Also, your beneficiaries will still receive the death benefits of your policy during the contest-ability period. If you die a day, a week, a month or six years after the policy took effect, the benefits 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. Amazing, isn’t it?
Save on Life Insurance
A million dollars might seem like a large or unnecessarily extravagant policy. But, when you consider the expenses you are leaving behind, a million dollar life insurance policy might make more sense.
Before making a decision, make sure you compare life insurance options and quotes. The cost of life insurance differs considerably from one insurance company to another, even for the same type of policy.