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Million Dollar Life Insurance Coverage

Researcher & Writer
November 12, 2017

A million dollar life insurance for a 35 year old male costs only about $256 a year, with it costing a 45 year old as little as $556 annually for 10 year term life insurance. So now you know term is cheap life insurance, please continue reading on why you should consider a million dollar life insurance policy.

Interested to see how much a million dollars of coverage costs for you based on your age? Click the following to view million dollar life insurance rates by age.

A million dollars is not what it used to be

In the early 70s the average income was around $9,500, the average price of gas was around 50 cents, and the average price of a home was about $45,000 source.

If someone had a million dollars of life insurance, that would certainly take care of a typical family and then some. However, thanks in large part to inflation, prices of many goods and services have dramatically increased year over year. For example:

  • The average U.S. home price is now $371,200 as of July 2017 
  • The May 2017 median household income in the U.S. is $59,345

Average Debt of U.S. Household consumer as of 2016

Average cost of raising a child as of 2017 is around $250,000. This does not include the cost of college which currently ranges from $9,500 in state and $22,000 out of state for public education and $44,000 for private education—a year!

This dramatic increase in expenses, debt obligation, and household income have increased the amount of life insurance a typical U.S. household needs in order to survive the death of a primary breadwinner. This is why a typical household in the U.S. needs to consider getting a million dollars of life insurance on the main income earner.

How to determine how much life insurance is needed

There are a couple schools of thought on how to determine the amount of life insurance needed.

Human life value

One way is the “Human Life Value”(HLV). Here is the best definition I could find, Human Life Value (HLV) is defined as the present value of all future income that you could expect to earn for your family’s benefit, plus other value you expect to contribute, less taxes and personal consumption through your planned retirement date. source

The Human Life Value can be broken down into an easy formula which basically states that to correctly asses you HLV you need a life insurance amount equal to15-20 times your salary.

Income replacement approach

Another approach I hear often in regards to figuring out how much life insurance you need is this: “As a rule of thumb, most financial planners recommend 7-10 times your annual income.” This is generally referred to as the income replacement approach or life insurance income approach. Although this is a good starting point, it generally neglects to factor in important aspects such as future earning power and inflation.

Hybrid approach

Now if we use a hybrid to the life insurance income approach and Human Life Value approach we can average the two recommended timelines of 15-20 times your salary under Human Life Value and 7-10 times your annual income under the life insurance income approach and come up with a factor of 13.5.

Therefore, if you want a more realistic number on how much life insurance you need, multiply your current income by 13.5 and we should be in the ball park of a fair number to use in determining how much life insurance you should consider.*

But this is still a rather crude way to determine how much life insurance you need. The reality is everyone’s situation is different. You might need less than a factor of 13.5 and you might need more. It all comes down to your individual circumstances and place in life.

Two Inexpensive Million Dollar Life Insurance Options

Term life insurance

Level term life insurance is the most affordable way to be insured. The insured takes out a policy with a set timeline, i.e. the term. The life insurance pays out the full death benefit from day one up until the term expires. This is the recommended product for the majority of clients looking to be insured for a good amount of life insurance without the huge price tag of whole life insurance.

Guaranteed universal life

Guaranteed Universal Life (GUL) insurance is permanent life insurance. The advantage is GUL has lower premiums than other types of permanent coverage, such as whole life. The disadvantage is that it does not build as much cash value.

You may want to consider cash value life insurance due to the unique benefits it offers.

What determines how much I will pay for a million dollars of life insurance?

In order to find the best life insurance quotes and rates on a million dollars it helps to understand what the carriers are primarily looking at. The primary factors affecting how much you will pay for life insurance are your age, health, height and weight, gender, and lifestyle.

  • Age: The older you are the more your life insurance will cost.
  • Gender: Women tend to outlive men and women tend to take better care of themselves than men. As a result, women pay less for life insurance. Sorry men, it is what it is.
  • Height and weight: Life insurance companies use a body mass index chart which looks at your height in contrast to your weight and gives a value for how healthy or unhealthy your weight is. Bodybuilders and big boned people should be aware that there are companies that will still give you the best rate class even if your BMI is too high. However, that will depend greatly on your health and lifestyle.
  • Health: Obviously the healthier you are the better rate class you will receive. You can check out what life insurance exams test for to get an idea of what the companies consider. Carriers will also look at your immediate family history to see if any cancer, heart disease, or stroke runs in the family.
  • Lifestyle: This encompasses a lot of different things but basically a company wants to know if you engage in dangerous hobbies, have any DUI’s or excessive speeding tickets, misdemeanors or felonies, or past drug or alcohol abuse. The cleaner your record the better chance you have of achieving the top rate class.

Who needs a million dollar life insurance policy?

This is a tough question to answer because it comes down to your specific situation. Some people simply have no need for life insurance because they either have no dependents and/or they have plenty of money set aside. But for those of us who do have dependents and do not have large cash reserves, we should consider getting a million in coverage.

Primary Bread Winner: The main household income provider needs life insurance. Since the majority of Americans have little to no savings (35% have less than $1,000 in their savings), then that would mean that the majority of Americans who are the household's primary wage earners need to be insured.

So if your income is $60,000 or more then you should consider getting a million or more in life insurance.

Business Owner: Business owner life insurance is a great way to protect the business in case the unexpected death of an owner occurs. You can use the life insurance as part of a buy-sell agreement or as a key man insurance.

Wealthy with a large estate: Using life insurance for estate planning is a great way to protect your estate from having to liquidate valuable assets to pay federal or state death tax. Not all states have a death tax but for those that do having enough life insurance to pay the state death tax will save your estate, your trustee, and beneficiaries a lot of headaches when trying to come up with liquid assets to pay off any debts or taxes.

Typically, there are no taxes on life insurance proceeds. However, if your beneficiary of your policy is your estate, you may be subject to tax if your estate exceeds the federal or state exemption limit. Using a life insurance trust for larger estates is a great tool for avoiding potential taxes on the payout.

When should I buy a million dollars of life insurance?

Before you die! But seriously, you should consider purchasing life insurance when you are healthy. The last thing you want to do is be diagnosed with some sort of serious disease making you a high risk. Your chances of getting insured at that point are substantially diminished.

Protect your "Insurability"

We have all heard or experienced firsthand the sad stories of a father or mother developing cancer or having a heart attack at a young age. I know of a father who recently passed due to a brain tumor. He had three young girls and a beautiful wife and no life insurance. He thought, like many of us do, that he was invincible. The sad truth is no one can know what tomorrow brings. Getting insured today is the only true way to give your family and yourself peace of mind.

What is the process for obtaining a million dollar life insurance policy?

You could choose no exam term life insurance for a million dollars. Currently, a million dollar no exam policy is only available for clients who meet preferred plus criteria. If you qualify you can be insured in just a short time. However, the price tag is a little higher than a policy requiring an exam so you have to weigh the convenience with the price.

The other way of obtaining life insurance for a million dollars is pretty straightforward. For those under the age of 60 many insurers will only require a typical life insurance exam (see how to ace your life insurance medical exam).

For ages 60 and above an EKG will also be included as part of the exam. The carrier reserves the right to order accompanying physician statements from your doctor if they desire.

Once your exam is complete your blood work will be sent to a lab. The lab will run test on your blood and urine sample. The results will be sent to the insurance underwriter who will make a decision on what rate class you qualify at based on the results. You will then be contacted with your approval and you can typically sign the documents online.

It is important to have choices, especially when we you have some sort of pre-existing condition. For example, clients looking for diabetic life insurance need to apply with a diabetic friendly carrier.

So, what are you waiting for?  Give us a call today or visit our Term Life Insurance Quotes page and see what we can do for you!

Thank you for reading our article, Million Dollar Life Insurance. Please leave any questions or comments below.

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We are a team of life insurance experts with the simple mission of helping you find the best coverage for your unique situation. We research, review, and rank life insurance companies to make that process easier.