The cost of a million-dollar life insurance policy can vary from a few hundred dollars to thousands of dollars per year, depending on certain variables. Your age, health, location, and type of life insurance coverage can come into play when calculating your annual premium. Buying the proper life insurance coverage can help protect your family and loved ones should something tragic happen.
Many people consider it priceless to know that their loved ones will survive and thrive long after they are gone. If a person doesn’t prepare for their death, they leave the possibility of saddling their loved ones with mortgage debt or causing them to lower their standard of living. Luckily, there is a solution to this concern — life insurance — and you can buy this “priceless” peace of mind for an actual price. The amount you pay for life insurance depends on a few factors. But if you would like to purchase a million-dollar life insurance policy, you need to choose the right type of life insurance and make sure $1 million is enough coverage.
Cost of life insurance: Term vs. whole life insurance
When deciding on a life insurance policy, it’s crucial to understand what exactly you need to cover. If you earn $100,000 a year, you’ll need to make sure the life insurance policy can replace that income. It should be able to cover mortgage payments, future college tuition, and other expenses. Next, make sure you can afford the life insurance premiums and that you choose the right structure. Do you want term life insurance, whole life insurance, or a combination of both? It’s awkward to think about, but your risk of dying factors into the cost as well. Age, health, location, and background are all important factors that come into play when companies devise premiums. Learn more about these costs and what you’ll pay for a million-dollar policy.
Life insurance 101
In its most fundamental sense, life insurance is a contract between a person and an insurance company. The insurer agrees that in the event of the insured person’s death, the insurance company pays out a lump sum to the beneficiaries. In most cases, the beneficiaries will be the surviving children and/or spouses of the deceased.
Life insurance companies charge premiums each year for the maintenance of the policy. These life insurance company premiums can vary, but in essence, they utilize traditional metrics to determine your risk of actually dying. There are effectively two types of life insurance: term life insurance or whole life insurance. To reach the million-dollar threshold, many people will choose a combination of both types of insurance.
Term life insurance
Term of life, or term, insurance is a type of life insurance that insures you over a fixed period of time in case of your death. For instance, if you get a 10-year term life insurance plan, you will be covered for exactly 10 years from when you begin the plan. In exchange for this coverage, you will pay an annual fee or a premium every year to the insurance company.
Here is an example of the yearly costs for a million-dollar insurance policy with a 10-year term.
You may have noticed that the table differentiates between men and women. This is because women tend to live longer than men and are considered to be slightly lower risk. You can also see a trend of the premiums becoming progressively higher with age. This is one of the variables that influence an insurance company’s risk analysis when pricing insurance.
When should people get term life insurance?
The point of term life insurance is to make sure your family and loved ones are covered in the case of a tragic death. For instance, with a $1 million policy, if you make $100,000 per year, you know your family will have the equivalent of 10 years of $100,000 income when the claim is paid.
Term life insurance can also be used more specifically. For instance, say that you had about $1.2 million left on your mortgage, with a further 10 years of payments until it is free and clear. You might get a 10-year term life insurance policy to make sure that your family can pay off most of the mortgage should you pass away. An insurance agent can help you calculate these costs.
Whole life insurance
Whole of life, or whole life, insurance acts very differently from term life insurance, and that is reflected in the premiums. Whole life insurance acts as both an insurance policy and an investment vehicle in which you can actually build up cash and access it during your life. Yes, whole life provides a death benefit and a living benefit in that it has cash value that you can access. Furthermore, whole life premiums exist for the entire duration of the insured’s life. There are no term limits or fixed time frames. If you live to be 110, you will pay premiums until then.
Here is an example of the average annual costs for whole life insurance plans from Mass Mutual:
You can see that whole life plans with $1 million of coverage are much more expensive than similar term life plans. This is because the plans serve a dual purpose, acting as both an insurance policy with a death benefit as well as an investment vehicle with a cash value.
When should people get whole life insurance?
Many people get a whole life insurance plan to act in conjunction with various plans they have for retirement. They feel that if they die, everything will be covered. But if they’re lucky enough to survive, then they have access to cash to help fund their retirement.
If you make $100,000 a year and want to cover your family for 10 years, then a $1 million whole life insurance policy should more or less suffice. However, should you live those 10 years, then you’ll have access to the cash that you built up. Whole life insurance, acting as a retirement account, offers some significant benefits, such as flexible cash withdrawals (as opposed to an IRA), tax-free withdrawals, and even tax-free cash value loans.
Mix and match to get to $1 million
When deciding if you want term insurance or whole life insurance for the million-dollar death benefit, many people won’t choose just one. Instead, they select a mixture of both, depending on their situation and desire to diversify.
For example, let’s say that you currently earn $100,000 a year and want your family covered for six years in case of your death. But you also want an account with cash value that you can access. In this case, you might opt for a $600,000 whole life insurance policy. At the same time, you have a mortgage with $400,000 and 10 years left on the term. So, in this case, you might want to get a term life insurance policy for 10 years with $400,000 of coverage. The $1 million life insurance policy will be diversified with two policies where you choose how much coverage you want for each.
This is important because it allows your family’s mortgage balance to be covered should you die suddenly. To cover this downside, you pay a small yearly premium, most likely in the hundreds of dollars. However, you also have the whole life insurance. Should you die, your family will get $600,000, but should you live, you will be able to access that money.
Are you ready to take the plunge and buy life insurance? Here are some companies to consider.
What factors into premiums
When insurance companies determine the premium they charge for your life insurance, they’re really looking at how likely it is that they’ll have to pay out that premium. In reality, they’re crunching numbers and running algorithms that determine how likely it is that you will die. Here are some of the factors they consider.
- Age. Age is easy; the older you are, the more likely you are to develop health problems and die in general. The older you are, the higher the premium you will pay.
- Height and weight. Insurers consider your height and weight to determine if you are overweight or obese. Many times, insurers will refer to a body mass index or BMI to measure your risk. The more obese you are, the higher your premiums will be.
- Gender. Women live longer than men, and thus they pay less. However, this is starting to change. Some states in the U.S., such as Montana, make it illegal for life insurance companies to charge more based on gender.
- Habits. Do you smoke? Do you drink excessively or have multiple DUIs on your record? Health insurance companies will look for these types of red flags as a cause for charging you a higher premium.
- Health. Insurers will also look at your overall health. If you have chronic diseases, expect to pay a higher premium. A person who is in dire need of a kidney transplant is going to be charged higher premiums than a perfectly healthy person.
- Occupation. If your job puts you in precarious situations, this can result in higher premiums. Jobs in construction, active military service, and various first responders like police and EMTs are considered higher risk. The higher the likelihood of you dying on the job, the higher the premiums will be.
How much is a $1 million life insurance policy?
Life insurance rates differ depending on health and identity variables as well as if the insurance plan is a term or whole life insurance plan. An average 45-year-old male may pay $516 per year for a 10-year term life policy with $1 million of coverage. If he buys whole life insurance and lives until age 90, his average premiums will be around $20,280.
What is better, whole life or term?
That really depends on your strategy. If you want to pay smaller premiums and understand that you lose the money if nothing happens, you may want term life insurance. If you want to cover yourself in case of death while being able to invest and access money, then you’d go for the costlier whole life insurance. However, many people choose to mix and match the two.
What reasons will life insurance not cover?
Your insurer can claim a few different reasons. However, this is often due to an application error, a lapse in premium payments, incorrect medical history information, or mistakes when designating a beneficiary.
How long do you have to pay life insurance before it pays out?
The amount of time you have to pay varies by policy. With a term policy, you pay until the term reaches maturity. It could be 10, 15, or even 30 years. With a whole life insurance policy, you will pay for the duration of your life.
At what age should you get life insurance?
There is no specific age when you should buy life insurance. It has more to do with the people who depend on you. If you are 30 years old and have three children and a spouse, you probably need life insurance more than if you are 45 and single.
- A $1 million life insurance policy can cost anywhere from few hundred to thousands of dollars. This depends on the type of insurance you buy, your age, and other risk factors.
- Whole life insurance covers you for the duration of your life, and you pay premiums the whole time. However, whole life insurance has a cash value and can be used as an investment vehicle for retirement.
- Term life insurance covers you in the case of your death for a specific period of time, perhaps 10 or 20 years. The premiums are lower than those for whole life insurance, but you cannot access the cash once you pay in.
- Age, health, and habits are some of the factors that insurance companies consider when calculating your risk profile and, thus, your premiums.
View Article Sources
- Life Insurance — U.S. Department of Veterans Affairs
- Healthcare & Insurance | Life Insurance — U.S. Office of Personnel Management
- I Need Life Insurance. What Kind of Life Insurance Should I Buy? — SuperMoney
- Life Insurance Facts Companies Don’t Want You to Know — SuperMoney
- What Are The Different Types of Life Insurance? — SuperMoney
- What is Term Life Insurance? And Why Is Everyone Suddenly Interested — SuperMoney
- What Does Life Insurance Cover? — SuperMoney
- How To Make a Will: A Step-by-Step Guide — SuperMoney
- Contingent Beneficiary vs. Primary Beneficiary: Definitions and Examples — SuperMoney
- Best Life Insurance — SuperMoney
- Everyday Life Insurance — SuperMoney
- Sproutt Life Insurance — SuperMoney
- Haven Life Insurance — SuperMoney