Do You Need a Million Dollar Life Insurance Policy? [Best Guide 2023]
Million dollar life insurance policy may seem extravagant, but many people need that kind of money to meet family needs or financial goals. Most people who have life insurance in the United States are actually underinsured.
When you add up all your current debts, your family’s current expenses, and future financial obligations, such as tuition, you can see that you really need a million-dollar policy.
A million dollar life insurance may not be as expensive as you think. If something were to happen to you and your family needed to continue your family tree, would it be worth a monthly premium of $30 to $100 for million dollar life insurance policy?
To learn more about life insurance from Ontario options and rates, contact an independent agent in your network. One of these agents can help you compare quotes and find the right coverage to protect your family.
Cost of living statistics
The average cost of tuition for the 2012-2013 academic year was $29,056 at private universities.
- In 2012, the average cost of a funeral was $8,565.
- The median home value in February 2013 was $152,000.
- The average cost of child care in Massachusetts was $15,000 in 2012.
- In 2012, the average credit card holder in the United States had $15,162 in debt.
What is a million dollar life insurance policy?
The million dollar life insurance policy is an agreement with a face value of one million dollars between you and the insurance company. The policy takes effect when the first premium is received and remains in force as long as you pay the premiums.
If you die during the term of the policy, the designated beneficiary will receive a one-time payment of $1 million from the insurer. If you do not name your estate as beneficiary or if you purchase the policy as a third party, this insurance proceeds will also not be taxed by the IRS or state authorities.
If you are purchasing a policy for that amount, it is advisable to discuss the details with your financial or tax advisor to fully understand the financial implications.
When does a million dollar life insurance policy make sense?
Not everyone needs a million dollar life insurance policy, but in many family situations, it can be useful. Let’s look at a common scenario where $1 million worth of life insurance makes sense and analyze the cost.
Example: A married couple with four children and a house.
John and Jane Smith earn about $60,000 a year. They have four children and live in a five-bedroom house with a $400,000 mortgage.
When a parent passes away, they want to minimize the devastation by having enough insurance to pay the mortgage so that the surviving spouse and children don’t have to move.
Another desire is to pay tuition for all four children. Depending on the state and whether it is a public or private institution, the average total tuition cost can range from $154,400 to $535,660.
Using the Quotacy website’s life insurance needs calculator, here are some of the factors and costs used to determine how much life insurance John and Jane need.
They want your life insurance policy:
- Funeral arrangements: US$ 10,000
- Mortgage payment: $400,000
- Compensation for loss of income: US$600,000.
- Pay children’s tuition: $155,000.
- Based on these figures, the proposed coverage amount for each is $1,200,000.
In this example, we have not taken into account additional debts, current savings and investments. Or the presence of a life insurance policy that they wish to keep. These factors can significantly affect the amount needed.
How much does a million dollar life insurance policy cost?
The cost of a million dollar life insurance policy takes into account a number of variables. The first of these variables is the type of policy you purchase. There are two types of life insurance policies which you can choose from:
Term life insurance: it is the least expensive form of life insurance policy. It only covers benefits in the event of death. You purchase a term policy for a period of time called a “term”. The term can be virtually any period of time you specify to the insurance company, such as 1, 5, 10, 15, 20, 25 or 30 years. Insurance premiums are usually fixed for the term of the policy. This type of policy is renewable, and most insurance companies will allow you to convert a term policy into a permanent policy, such as a whole life or universal life policy.
Permanent life insurance: Permanent life insurance comes in three main types: whole life, universal life and variable life. Insurance companies offer many types of these policies in different formats. Therefore, you should always study the policies carefully to understand what you are buying. These policies are more expensive than term life insurance because they have a cash value accumulation feature in addition to the death benefit.
Life insurers use algorithms to determine the value of your premium, and these are based on a number of factors, including:
- Its kind
- Their age
- Are you a smoker?
- Your health profile
- Your lifestyle
- Your family history
- Your occupation and hobbies
- The results of your medical examination
Below is an example of the premium cost of a $1,000,000 20-year term life insurance policy at Preferred Plus rates for healthy, non-smoking men and women.
What are the features of a million dollar life insurance policy?
The features of a million dollar life insurance policy depend on the type of policy you purchase. With term life insurance, you are covered for the term you purchase, for example, 20 years.
Although this type of insurance is also renewable, it can be significantly more expensive at renewal time because it has aged 20 years since its initial purchase and the premium increase reflects this age difference.
You may also have the option to convert your policy to a permanent policy, and you may not be required to pass a medical exam.
With a permanent policy, you are insured for life. Your beneficiary not only receives the death benefit or “face value” of the life insurance policy but also accumulates a “living” capital – the cash value that accumulates in the savings/investment component of your policy.
After a certain period of time and depending on the policy and the insurer, you may also receive a credit against the cash value of the policy. You can withdraw these funds tax-free. If you do not repay the amount borrowed, your death benefit will be reduced accordingly.
Does it make sense to buy millions in life insurance?
Only you can decide if this amount of life insurance makes sense for you, but you can take your own inventory to make the right decision. The two most important factors to consider are your current financial needs and your future financial obligations.
A $1 million policy can be useful if you need it to cover all of your current debts, such as mortgages, personal loans, and credit cards. Also consider the loss of income, funds needed for your children’s tuition, and annual living expenses for family members.
According to most experts, the minimum amount of life insurance should be 5 to 10 times your current gross annual income.
To determine the appropriate amount of life insurance, take into account all financial obligations and subtract current investments and assets, as well as the impact on household income.
If you would like help evaluating your life insurance needs, contact an independent life insurance agent in the Trusted Choice network. These agents provide unbiased information because they work with several life insurance companies and do not promote the products of any one insurance company.
An independent broker can help you evaluate the options that fit your needs so you can make an informed decision.
How does a million dollar life insurance policy work?
Once you have determined the type of policy you wish to purchase, the next step is to complete an application with the help of your life insurance agent. The agent will then send the application to the company of your choice. The health insurance company will schedule a doctor’s appointment for you.
Once the life insurance underwriter has reviewed the results of the medical examination, he or she will receive the policy and premium rates. The policy becomes effective when you sign the contract, return it to the life insurance company and pay the first premium.
What happens then? You may be familiar with the “two-year dispute period”. This is the period of time during which the life insurance company can verify your information – such as your current health status – and deny you insurance coverage if you have made false statements.
It begins on the effective date of the policy and lasts for two years. This simply means that you must answer the questions you are asked truthfully, or you may find yourself without a policy benefit when you need it. After the two-year period, the life insurance company cannot cancel your policy if you do not pay the premiums.
Again, your beneficiaries will continue to receive the death benefit from your policy during the contest period. If you die one day, one week, one month or six years after the effective date of the policy, the benefit/cash value will be paid in the form of a lump sum to the beneficiary named in the policy.
Therefore, even if you have only paid $100 for a $1 million policy, the entire payout goes to your beneficiary.
Help in choosing a life insurance policy
A million dollars means a lot of money. However, if you analyze your overall financial situation and consider how much money you will have left to support your family and the expenses you will leave behind. Then, a million dollar life insurance policy may make more sense to you.
Be sure to compare life insurance options and quotes before making a decision. The cost of life insurance policy may vary significantly from one insurance company to another, even for the same type of policy.
An independent agent in our network can help you obtain quotes from several life insurance companies to meet your specific needs.
Contact your local independent agent today to compare million dollar life insurance policy quotes and learn how you can provide financial security for your family.
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