What Does a Million-Dollar Life Insurance Policy Really Mean?

One million dollars seems like a lot of money, and for most of us, it really is.

However, when it comes to life insurance, is a one-million-dollar life insurance policy enough? Is it too much?

Let’s look at what a million-dollar life insurance policy really means for your financial security.

The Basics of a One-Million-Dollar Life Insurance Policy

First, let’s start with a few basics. Life insurance is a financial protection you provide to your loved ones if you die. Depending on your family’s stage of life, you may need more or less coverage.

Take, for example, newlyweds in their early twenties with a baby on the way, and then compare them to a retired couple with grown kids and sizable savings. If a spouse dies in either of these scenarios, the financial outcomes could be very different. The young couple may not have as much saved in the bank to cover their living expenses compared to the older couple.

In this example, the one-million-dollar death benefit might be more than enough for the retired couple. However, the newlyweds may see a need for a larger death benefit as they assess their obligations as a young and growing household.

What does life insurance need to cover?

Common considerations to factor into your decision include mortgage payments, car payments, student loans, personal loans, credit cards and other debts. You should also consider everyday living expenses and future costs (like college tuition for the kids and retirement costs).

Depending on your circumstances, suddenly that big $1 million number can start shrinking.

Although $1 million seems like a nice, round amount when applying for a life insurance policy, it makes sense to take a more strategic path. Using a calculator to help you decide how much life insurance is appropriate for your situation will give you a better picture of how much money you need to support your loved ones if you die.

Who can get a million-dollar life insurance policy?

Let’s say you’ve decided that a million-dollar life insurance policy is the right amount. Then, you need to see if you can get one. The first question to ask yourself is, “Can I afford to keep up the monthly premiums to carry the policy?” When you buy a life insurance policy, you pay a monthly premium to keep it in force.

How much does a one-million-dollar life insurance policy cost?

Typically, the premium for a million-dollar term policy starts at around $30+ a month and then goes up from there based on your age and health status.

Here are a few of the factors that affect the cost of the policy:

Age
Lifestyle factors (i.e., skydiving or smoking)
Health
Gender (women tend to live longer than men)
Policy type (Term vs. Permanent)

Term vs. Permanent for a Million-Dollar Policy

Buying a one-million-dollar permanent life insurance policy will have a significant price difference over a term policy with the same face value. Term insurance will be cheaper, as these policies have no accrued cash value and end after a certain amount of time (the “term”).

For example, if you have a 20-year term policy for $1 million, you would pay your monthly premiums for 20 years, and if you did not die during that time, your policy would end at 20 years with no value attached to it after that. As mentioned before, perhaps you paid $40 a month or so for that policy.

On the other hand, you may pay hundreds a month for a one-million-dollar permanent policy, but that policy will be, as the name suggests, permanent. If you keep it long enough, it will also accrue cash value that can be accessed if needed.

Do I Have to Take a Medical Exam?

Your next question may be, “What’s the process for getting a policy?” The insurance company offers you a life insurance policy only if you are considered a reasonable risk for them. The way the insurance company determines this is through a process called underwriting. They’ll ask you health questions, do a medical exam and/or obtain medical records from third-party sources.

No Medical Exam Options

Some insurance companies advertise “no medical exam needed” for their insurance plans. However, these are typically for policies with a lower face value than a million dollars.

Express policies with no exams can sometimes go up to $300,000, but any higher, and you’re looking at more scrutiny to get underwritten. Perhaps you may even be able to find a company or two that offers up to $1 million with no medical exam. But even with these, there is a good chance that you won’t get through the whole process without a follow-up exam.

Conclusions

Knowing what a million-dollar life insurance policy means in today’s market and in today’s dollars is an important benchmark to understand. It’s a good starting point for making your own decisions on life insurance. Then, your next step should be to dive deeper into your own needs and find the insurance product that is right for you.  

Finally, if you are looking for help in this process, we recommend speaking with an independent insurance agent. As a licensed professional, an agent can help you compare products and insurance companies so you can find the best solution for your situation.