The “Million Dollar” in a million dollar life insurance policy can surely make it look tempting, but quite far-fetched as well. Like any other life insurance, a million dollar life insurance is a contract between an insurance policyholder and an insurer. In the situation of the death of the insured person, the insurer must pay the designated beneficiary a sum of money, in this case, 1 million dollars, in exchange for a premium. As long as your estate is not named as the beneficiary and you haven’t bought the policy as a third party, the proceeds from the insurance will be non-taxable.
Now that you know what a million dollar life insurance policy is, you might want to learn more about its cost and what it has to offer.
How much does it cost?
The cost of a million dollar life insurance policy varies depending on the type of policy your purchase.
- Term Life Insurance: A term life insurance is the most common and affordable life insurance available. This insurance is bought for a period known as the “term.” The term can be any period of time, like 1,5,10,20,25 or 30 years, which you set with the insurance company. The premiums are fixed for the life of the term. This policy covers death benefits only.
- Permanent Life Insurance: The three types of permanent life insurance are – whole life, universal life, and variable life insurance. They are more expensive as they offer a cash value accumulation feature in addition to death benefits.
The cost of your premium will depend on a wide range of factors such as –
- Tobacco Use
- Health Profile
- Family History
- Medical Reports
Depending upon the above factors, the applicants are segregated into various levels. If you are a heavy tobacco user or have any health issues, you will be placed in a higher risk level, leading to a higher premium on your policy. The older you are, the more is the premium on your policy. Furthermore, your term also decides how much your premium will cost.
Do I need it?
The most important question you need to ask yourself while buying a million dollar life insurance policy is – Do I need it?
The decision to purchase a million-dollar life insurance policy comes down to your financial needs. You may want to buy the policy for a term that lasts as long as your mortgage repayments. Maybe you get married and have kids. So you would want to map the policy term to your children’s age, making sure it lasts until they have finished school, turned 18 or graduated.
In addition to your family’s needs, your debt and age also play a huge role in determining if you really need a million dollar life insurance policy.
Consider your financial obligations and deduct your current investments and assets. Be aware of the impact the loss of income will have on the household when determining the amount of life insurance that works the best for you.
So, YES. If you need a million dollar life insurance, go for it. As long as you’re employed and your income matches the desired income, you’ll have no problem qualifying for the coverage you seek.