That number, one million, seems awfully large when you first consider it, especially when it comes to life insurance.
But for most individuals shopping for life insurance, the purpose for the insurance coverage should be used to determine how big or small that number should actually be.
Moreover, if your intention is to leave enough money to cover living expenses for your family for a handful of years, a million-dollar policy could be sufficient.
However, if your need for life insurance is to cover all of the above, a million-dollar life insurance policy will probably not get you there. Keep reading to find out what a million-dollar life insurance benefit can or cannot do for your family when you’re gone.
What is a Million Dollar Life Insurance Policy?
Simply put, a million-dollar life insurance policy is a promise from an insurance company to pay a $1,000,000 death benefit in exchange for a premium.
This million-dollar promise and your obligation to pay the required premium are always spelled out in the terms and conditions of your life insurance contract with the company.
The contract between the applicant and the insurer will become effective when the application is approved (accepted) by the insurance company and the policy is issued.
Of course, the policy will only be issued after the insurance company receives your initial payment required by the company. And, your policy will remain in force as long as you continue to make the agreed-upon periodic payments. If you don’t, your policy will lapse.
If you die during the policy period (term of the policy), the insurance company will pay the death benefit to the beneficiary or beneficiaries who are listed in your policy. If you fail to list at least one beneficiary (person or entity) in your policy, the death benefit will be paid to your estate.
Who Should Get a Million-Dollar Life Insurance Policy?
Certainly, not everyone needs a million-dollar insurance policy. And in many cases, the insurance company will look for evidence that will demonstrate why an applicant is applying for a death benefit that size.
But if you think about it, in today’s economy it’s not difficult for a family to need a large life insurance policy on the breadwinners in the household when you consider the cost of a home, two or three vehicles, credit card debt, savings for college expenses, and savings for retirement. Not to mention the cost of a funeral and burial service.
So, once again, if your intention is to replace your income that your family depends on, you’ll likely need $1million in coverage to handle it.
What is Covered in a Million Dollar Life Insurance Policy?
Unless you’ve opted for some optional riders that provide living benefits, your million-dollar policy will only pay off if you die during the policy term.
Soon after your death, the insurance company will pay the death benefit to the beneficiaries you’ve listed in your policy in the percentage or amount you’ve listed.
However, be forewarned that your beneficiaries can spend that tax-free death benefit in any way they please and that money is outside of any will you may have left behind.
If your life insurance is intended to replace your income after you die, the common things that beneficiaries will spend it on are:
Your funeral and burial
Outstanding mortgage on the home
Unpaid medical expenses
Monthly living expenses
College savings fund
Remember, if you opted for one or more insurance riders that provide living benefits like a terminal, chronic, or critical illness rider, and you had to trigger that rider, the amount you received as an advance on your death benefit will be deducted from the death benefit.
How Much Does a Million-Dollar Policy Cost?
There are many things that are factored in to consider the cost of a million-dollar life insurance policy:
Type of Policy – Term, Whole Life, or Universal Life
Policy term – 10, 15, 20, 25, or 30-years or lifetime coverage
Age and health of the applicant
Occupation and lifestyle of the applicant
Foreign travel plans of the applicant (in some cases)
Cost of additional riders if selected
Term life insurance will always be the least expensive choice of the three policy types because there is no cash-value account attached to the policy.
The benefits of choosing term life insurance are:
Lower periodic premiums (monthly, semi-annually, or annually)
Guaranteed death benefit if premiums are paid
Guaranteed level premium for the entire policy term
Choice of 10, 15, 20, 25, and 30-year policy term (some insurers offer 35 and 40 years)
Renewable as an annually renewable policy at the end of the initial term (rates go up each year at anniversary)
However, if you prefer to have a cash account that earns tax-deferred interest attached to your policy, Universal Life would be the less expensive choice when compared to whole life.
The benefits of choosing universal life insurance are:
The policy builds cash value over time and earns tax-deferred interest
Easy access to cash value account via policy loans
Lifetime life insurance if policy if properly funded
Flexible death benefit and premium payments
Whole life insurance is very similar to universal life except the death benefit and premiums are not flexible and the premiums are generally higher.
Eligibility Requirements for a Million-Dollar Life Insurance Policy
If you are considering a million-dollar policy, most insurers require information concerning your risk to the company and whether or not your earnings and expenses justify this amount of coverage.
Not only will you have to pass the medical underwriting requirement, but the insurance company will also want to verify that you are an acceptable risk when it comes to:
Your Age – Most carriers are okay issuing an insurance policy with a death benefit that is up to 40 times the annual income for applicants under age 40. Up to 25 times the annual income for applicants between 40 and 60, and up to 10 times the annual income for applicants between age 60 and 70.
Existing Coverage – If you’ve justified your need for a million-dollar policy, the insurance company will want to know if you have other life insurance in force and whether you plan to keep that coverage. If you’re asking for a million-dollar death benefit but are already insured for $300,000 and planning to keep that policy, the insurer will likely make an offer for $700,000 in coverage.
Income – An insurance company is unlikely to offer a million-dollar policy to anyone whose income and net worth don’t justify the amount of coverage. Applicants should expect to show proof of annual income as well as his or her current net worth.
Health – Any current and past health conditions will certainly come into play when asking for a million-dollar limit of coverage. Health is always a primary underwriting issue when purchasing life insurance, and in many cases, the insurer will also inquire about the health of your parents and siblings.
Can You Get a Million Dollar Life Insurance Policy without a Medical Exam?
Yes, you can. Because of today’s technology and innovative underwriting processes, some insurance companies will offer life insurance with a million-dollar death benefit while a few carriers will go even higher.
Keep in mind that you’ll likely pay higher rates because the insurer has allowed you to forgo the life insurance medical exam and blood/urine analysis.
For example, we are aware of nine life insurance companies that we represent that will offer a million dollars in life insurance without a medical exam. Of those nine insurers, four of them would charge less than $50 per month for a 30-year-old male non-smoker in very good health.
More importantly, each of these companies is very well known and earned “A” or better ratings from the national rating services.
Best Companies for Million Dollar Life Insurance Policies
Although rates are a priority for most individuals shopping for life insurance, it’s important to stress that the company you select has the financial stability to keep its promise to pay the death benefit for the life of the insurance policy.
Additionally, if you prefer to forgo the medical exam, you’ll need to consider companies that will offer a million in coverage without a medical exam requirement.
The list of companies we recommend and also represent are (in no particular order):
Banner’s most sought-after life insurance product is its OPTerm life insurance product. OPTerm is offered to applicants with a 10, 15, 20, 25, 30, 35 and 40-year rate guarantee. The policy is renewable up to age 95 and the policy contains a conversion option.
The Protective Classic Choice Term product is a great solution for individuals and families looking to replace the income of a breadwinner. With low-cost term insurance, applicants can apply for substantial face amounts with policy terms of up to 40 years.
Lincoln National Life term products are best suited for individuals and families looking to purchase a large death benefit that can deliver the funds needed for living expenses, debt elimination, mortgage satisfaction, college funding, and final expenses when the policyholder passes away.
AIG – American General’s Select-a-Term product is similar to other term products in the marketplace except the company will issue policies that are year specific. For example, if you need coverage for only 23 years, you do not have to purchase a 25-year policy like you would with most other carriers.
Pacific Life’s Promise Term life insurance is available in policy terms of 10, 15, 20, 25, or 30-years with a minimum death benefit of $50,000 and the option to convert your term policy to a permanent one without regard to insurability.