Life insurance offers peace of mind for your financially dependent loved ones when you pass away. However, it’s important to choose a coverage limit that will offer suitable income replacement for your heirs — or meet other financial goals. You might benefit from a $1 million life insurance policy if you’re a high-earning professional or entrepreneur, or if you want to get a large life insurance policy as part of your estate plan.
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What is million dollar life insurance?
A million dollar life insurance policy is any life insurance policy that has a death benefit of $1 million. The death benefit, also called the face value, is the maximum amount of money your beneficiaries will receive if you pass away while the policy’s active. This money can be used for any purpose and is typically not subject to income taxes.
Who needs a million dollar life insurance policy?
There are several groups of people who can benefit from a life insurance policy with $1 million of coverage. However, this amount of life insurance is generally suitable for people with a significant income, either through employment, investments or another source.
“If you have a high income and your family members are used to a certain lifestyle, a million dollar life insurance policy could be appropriate,” said Eric Croak, a certified financial planner and the president of an Ohio-based wealth management firm. “It would allow your family members to continue funding their normal way of life without your income.”
If you’re thinking about retirement, purchasing a $1 million life insurance policy can also be beneficial for estate planning.
For example, if you want to ensure that your heirs can pay for your end-of-life expenses, funeral arrangements and unpaid debt, adding a life insurance policy to your estate might be a good solution. The death benefit could also be used to pay for estate taxes that your surviving family members would be responsible for.
How much is a million dollar life insurance policy?
How much you’ll pay for a life insurance policy with a $1 million death benefit varies. “The cost of million-dollar life insurance premiums depends on several things, such as your age, health history and the kind of policy you choose,” said Croaker. “In general, the less of a risk you pose to the insurer, the less you’ll have to pay. Life insurance tends to be cheaper when you’re younger, so if you wait to get insured, it will cost you more.”
Choosing a term life insurance policy, which provides coverage for a certain number of years, is typically less expensive than choosing a permanent life policy like whole life or universal life. Although the premiums tend to be higher, permanent coverage lasts for your lifetime, assuming you continue to make your payments, and provides access to a cash value account that either earns interest or is invested and grows tax-deferred.
Average cost of million dollar life insurance
Below is a comparison of the average cost of a $1 million term life insurance policy for 30-year-old and 40-year-old males and females over a 10-year, 20-year and 30-year term, based on our data:
| Age of buyer | Gender | Average monthly cost for 10-year term policy | Average monthly cost for 20-year term policy | Average monthly cost for 30-year term policy |
|---|---|---|---|---|
| 30 | Female | $20 | $29 | $47 |
Male | $24 | $38 | $63 | |
| 40 | Female | $30 | $48 | $83 |
Male | $35 | $60 | $109 |
Average term life rates are based on nonsmokers in excellent health.
What factors affect the cost of million dollar life insurance?
Million dollar life insurance policy costs are based on a variety of personal- and policy-related factors. Some of the most notable rating factors that can affect the cost of your life insurance policy include:
- Age
- Gender
- Health
- Occupation
- Lifestyle
- Nicotine use
- Family medical history
- Type of life insurance policy (term vs. permanent)
- Insurance company
How much life insurance do I need?
The amount of life insurance coverage that you need should be based on your current income, financial obligations, the number of dependents you have and your financial goals for the future. There are several ways to calculate an appropriate amount of life insurance for your situation.
“The general rule is to get life insurance that’s about 10 to 12 times your annual income,” said Croaker. “If your annual income surpasses $100,000, having a $1 million dollar life insurance policy is a reasonable choice.”
A more comprehensive way to calculate your life insurance needs is to use the DIME method, which stands for debt, income, mortgage and education. Take the total of your existing debt, current income, remaining mortgage balance and approximate education costs and add these together. Then choose a coverage limit that matches this figure.
Keep in mind that you might need more or less coverage than these models predict depending on your circ*mstances. If you’re single and have no children, for example, you might need less than $1 million in life insurance. On the other hand, if you support multiple kids and your aging parents, you might need more than $1 million in coverage.
How to buy a million dollar life insurance policy
To purchase a one million dollar life insurance policy, you will need to find an insurer that offers large life insurance policies and submit an application. You must disclose information about your current health, family medical history, occupation, hobbies and lifestyle, which the insurer will use to determine your eligibility and calculate your rate.
In most cases, you’ll also be required to undergo a medical exam as part of the application process. During the medical exam, a doctor will conduct a routine physical and talk to you about your medical history. The doctor might also order a urine or blood test to check for underlying issues that could affect your long-term health.
After the medical exam, an underwriter from the insurance company will review your application and the results of your exam to determine your eligibility and your premium. Approval times can vary between companies, but they typically range from a couple days to a few weeks.
Can I get no-exam million dollar life insurance?
It’s possible to get a million dollar life insurance policy without taking a medical exam, but it’s not the right choice for everyone.
“Generally, this option is available to people under 65 years old who are in good health,” said Croaker. “The trade-off, though, is that by skipping the medical exam, you may end up paying higher premiums for your coverage compared to what you would pay for a policy that requires a medical examination. This is because the insurer is assuming more risk by not verifying your medical information.”
In lieu of an in-person medical exam, many insurers require applicants to submit an in-depth health questionnaire instead. If you have serious preexisting health conditions, like cancer or diabetes, or other risk factors that could make you too high of a risk and/or ineligible for a million dollar life insurance policy, the insurance company will still be able to find out.
Which insurance companies sell million dollar life insurance?
Most big life insurance companies sell policies with $1 million in coverage or more, including all of the winners in our best term life insurance study. In addition to these insurers, you can also find $1 million policies with:
- Progressive
- Guardian
- Mutual of Omaha
- Northwestern Mutual
- Ethos
- American General
- Midland National
- Penn Mutual
- Lincoln Financial
- Ameritas
- SBLI
- USAA
Frequently asked questions (FAQs)
Some million dollar life insurance policies can be converted or upgraded if you have certain riders, or optional coverages. For example, a term conversion rider allows you to convert your $1 million term life insurance policy into a permanent cash value life insurance policy without taking another medical exam. A guaranteed insurability rider enables you to raise your policy’s death benefit in the future without medical underwriting.
Million dollar life insurance policies have several tax benefits. When you pass away and your beneficiaries receive the death benefit, the life insurance money is typically not taxable. Additionally, if you choose a permanent life insurance policy, you won’t pay taxes on your cash value growth until the money is withdrawn or borrowed, so you can potentially save more money overtime.
A million-dollar term life insurance policy provides protection for a certain number of years, whereas a whole life policy provides lifetime protection. If you pass away during the term, your beneficiaries receive the $1 million death benefit. If you outlive the term, they don’t receive anything, unless you have a return of premium rider (in which case you can get a portion of or all of your premium payments back).
With a whole life policy, your beneficiaries will receive the death benefit no matter when you pass away —assuming you’ve made all of your premium payments. Whole life policies also build cash value, which means the premiums are generally more expensive.
