With the arrival of our third child, I thought it was time to upgrade to a one million dollar term life insurance policy. Now that may seem excessive, but there are many reasons to have this much life insurance and my family meets several of them.
While not everyone needs to get this large of a policy. The exercise of looking at life insurance and knowing that your family or loved ones are covered is one that should be a part of any financial plan.
With that in mind let’s go through the main questions people have when I tell them I have a $1 million dollar life insurance policy.
Isn’t a One Million Dollar Policy a Bit Excessive?
With any financial decision a part of it is going to be custom to your personal situation, so the amount of life insurance you need is going to be a little different for each person. What I will say is that one million dollar term life insurance policies should be what is normal for primary bread winners with children.
To prove my point let’s do a little math. The average funeral in American costs around $10,000. To help out with this I am trying to lose weight in hopes of getting a discount on cremation (I kid, I kid). No If you have two children that are 5 and 7 (like my two oldest) then you have about 17 years till they are done with college.
This means my wife really needs my income for 17 years. If I have $50,000 a year in take home pay then that comes out to $850,000. So we just hit $860,00 without blinking an eye. That doesn’t count college tuition or getting any debt out of the way.
As you can see it’s pretty easy to get to that one million dollar number when talking about what you need in a term life insurance policy. On top of that, the policy isn’t so large that you have to sleep with one eye open at night.
So, How much does a million dollar life insurance policy cost?
When you get this large of a policy term life insurance is going to be the best choice. You will pay MUCH less with term life insurance than with a permanent policy. And the great thing about term is that it is SUPER cheap. How cheap?
A 35 year old male who doesn’t smoke and gets the top health rating can get one million dollars of term life insurance for $37 a month on a 20 year term policy. That’s right, thirty seven dollars a month. That’s less than two trips to Starbucks when you buy a drink and a scone. OK maybe I exaggerated a bit on the cost of Starbucks, but that is still FREAKIN CHEAP!!
That price stays locked in for 20 years. If you want to lock in for a 30 year term, the price goes up to $71. That is pretty amazing considering the person would be 65 by the time the policy ran out.
Now let’s say you aren’t in the best of shape and the insurance underwriter dropped you to a preferred level. Then you will pay $53 a month for that same policy and if they drop you two levels then it’s still only $63 a month for the same 20 year term, one million dollar life insurance policy.
As with any type of underwritten life insurance (has a medical exam, etc.), if you smoke or have an existing medical condition the premiums will be significantly higher.
But, as you can see, the jump up to this range of policy for most people really isn’t a major financial burden when you consider how much benefit your family would get out of it.
If you want to play around with the numbers, you can use the hand dandy life insurance quote form on the side of this page. It does send your info to a single life insurance agent. No, you will not get slammed with phone calls from fifty different agents all running to the phone to try to call you first.
Who needs this amount of life insurance?
The answer to this question can go all over the place because each situation is different. To hit the major ones though, I would suggest a $1-million-dollar life insurance policy on people who are:
- Primary income earner with spouse and children
- Secondary income or stay at home spouse with children if you have substantial debt or high cost of living in your area
- Primary income earner with no children if spouse is completely dependent on your income
- Anyone in high cost of living areas where you need to pay off a mega-mortgage of $500,000+
After that it is really going to be up to you to determine if a policy of this size is best for your family. Before we had three kids, I had a $500,000 policy. That was enough that Amy could pay off the house, bury me with style, and make sure she didn’t have to work for several years so that she could mourn the loss of such an awesome husband.
Do I get the money back when the term is up?
With the standard term life insurance policy, you do not get your premium payments back when the policy expires. You can however choose a return of premium policy and you would receive all your premium payments back at the end of the term.
This sounds like a good idea, but the ROP policies are much more expensive. That same guy from the original scenario that was in good health, he would $168 a month for a return of premium policy instead of that $37 with the traditional term policy. You do get all that back, but I would rather invest that $131 than have it sitting idly. That way if I do kick the bucket, my spouse gets both the million dollar life insurance payout and has the money I invested over that period of time.
What kind of tests do I have to go through to get approved?
I am not a big fan of doctors, but life insurance tests are pretty tame. They have you fill out a questionnaire that gets all your health information and then they draw blood. This does a bunch of testing to make sure you aren’t lying to them and to place you into a health class (preferred plus, preferred, regular plus, regular, etc.).
The underwriters determine your premiums based off of this information. The main points they take into consideration are:
- Smoking status
- Health profile
- Family History
- Medical Exam results
You are probably thinking that including hobbies and occupations for consideration seem a little weird, but if you are a skydiving instructor then your rates will be higher than the average office worker.
How Do I Get the Best Rates on a One Million Dollar Policy?
This is why I included the tool on this page. An independent insurance agent will shop your information to a bunch of different life insurance companies to see which one will get you the best rates. You don’t even have to call anyone they will just do this for you.
Independent agents are just contractors with pretty much all of the best life insurance companies. They get paid no matter which policy you go with, so they work to find the right policy for your needs instead of trying to fit your needs into a small group of policies offered by their company. This means that, whether it is Mutual of Omaha, Genworth, Primerica, or some other life insurance company that will get you the best rates, the independent agent will find them for you.
The other factor that I love is convenience. Since the agent is shopping for my policy with a bunch of different companies, I don’t have to make a ton of phone calls getting rates and making sure that each policy quote is actually the same type of policy (comparing apples to apples).
If you have anyone that relies on your income for survival, if someone would be financially inconvenienced by your passing, or if you have substantial debt, then you need a life insurance policy. Sit down with your family, have a discussion and figure out how large of a policy you should be getting.
If something were to happen to you, you want that policy in place and ready to take care of all your loved ones and make sure the memory of you was one of being responsible.