When I was a young agent, I used to think $1 Million to $2 Million of term life insurance was a lot of coverage.
Well, I have learned over the years from seeing first hand the heartbreak of insufficient coverage, and of course, thinking of my own family, 1-2 Million is not a lot of coverage.
You may be wondering if you need that much coverage. And more importantly, how to get the best price.
For an immediate coverage decision up to $2 million, consider Haven Life.
Table of Contents:
Who Needs $1 Million Dollars of Life Insurance Coverage?
With 10+ years of experience and hundreds of clients under my belt, I can easily make an argument for why a spouse, parent, or business owner might need $1 Million to $2 Million of term life insurance.
I’ve also know that you don’t have to break the bank when you buy a million dollar policy – it’s affordable.
What Does a Million Dollar Life Insurance Policy Cost?
Let’s say the income-earner is a 40 year old male in excellent health, he’ll pay just $66.52 per month for a 20 year term policy with $1,000,000 in coverage!
Wow. Now that’s incredible! This is how he qualified for that rate:
He’s a young husband and father making $50,000 per year. He wants to leave his wife enough coverage to replace his income indefinitely.
After all, she’ll need to be able to:
- pay the mortgage and other bills,
- raise the children,
- and put them through college
He would need at least a 20 year term, $1,000,000 policy on his life. If we assume a $1,000,000 nest egg invested conservatively will earn 5%, that will generate $50,000 per year…which means she could live off the interest without ever depleting the principal.
So what happens when that income earner makes $80,000 – $100,000 per year? The need for coverage increases to $2,000,000 in life insurance.
But is it affordable?
Let’s check out some additional sample rates below:
$1 Million to $2 Million – 20 Year Term Quotes
The sample quotes below are for a non-smoking male in excellent health for a 20 year term. Please note that use of medications or health history may or may not increase the premium.
*NOTE: The one exception is for the 80 year old, which is a guaranteed universal life quote, which had to be quoted since no companies offer 20 year term past age 75.
If you would like to see a quote for a 10, 15, or 30 years (or permanent), fill out our free no-obligation quote form.
What If I Have a Pre-existing Medical Issue?
The good news is if have well-controlled hypertension or cholesterol, you may even be able to qualify for Preferred rate classes, such as the rates quoted above.
In the case of well-controlled diabetes with no other medical issues, a Standard classification is easily obtained. Even preferred is a possibility with a recent diagnosis over the age of 55 with low a1c.
Smoking won’t prevent you from getting approved either, but again, you’ll want to check out our savings guide for the best results.
A history of other medical conditions could push you out of the preferred rates. Heart disease (stents, bypass, heart attack, etc), cancer, hazardous hobbies, occupation or travel, and many other factors may make you ineligible for that category.
If you have a preexisting condition call us for a quote, we can help you find the best possible company.
Is a $2 Million Policy a Good Investment?
Sounds like a lot doesn’t it?…but if you can afford the premium, this could be the best investment you ever made.
Let’s say you purchased this policy at age 60 for $2 Million in coverage for a 20 year term, and lived for 10 years.
You would have paid $101,086 into the policy over the 10 years, but your return upon death would be $2 Million. That’s an internal rate of return of 62% per year!
If you lived 15 years, your equivalent rate of return would be 32%, and 20 years it would be 20%.
In other words, if you wanted to accumulate $2 Million dollars over the course of 20 years, and invested $842 per month into an alternate investment, it would need to earn 20% per year to accumulate to $2,000,000.
So, yeah, it’s a great investment, if you can afford it.
$1 Million or $2 Million of Universal Life or Whole Life
Guaranteed universal life insurance is similar to whole life insurance, but without the cash value accumulation.
So you pay the lowest amount possible (only the cost of insurance) to provide guaranteed coverage for life, whereas for whole life, you pay extra premiums that build up as cash value.
Most Americans would probably balk at the idea that they might need $1 Million to $2 Million of term life insurance.
Unfortunately, many of these people are wrong!
Because a large number tend to underestimate how much life insurance may be needed and are under insured as a result.
One of the main issues is quite simple. Most people are more likely buy life insurance when they are younger and don’t consider the big picture of where they might be 20 – 25 years later.
It’s difficult to picture what your future family will need down the road. Variable factors such as increases in income, additional children and large mortgages may be tough to imagine in your youth.
Another factor which many people neglect to keep in mind is that inflation keeps increasing over time.
A large number of Americans own and operate their own businesses. You may be a well-paid consultant, a professional, skilled trade’s person or the owner of a mid to large size company – but one thing holds true for all business owners – life insurance is vital to the security of your family.
13 Reasons to Reevaluate Your Life Insurance Coverage
So, let’s review 13 valid reasons why you may need to reevaluate the amount of your current coverage from 4 different perspectives: income replacement, debt, estate and business purposes.
1. Life Insurance Income: Replacement for High Income Earners
This is a no-brainer. If you earn more than $100,000 per year, as either the main breadwinner or as a combined income, you most definitely need to be looking at a minimal life insurance policy of $1 – $2 million dollars.
Anything less would leave you under insured!
Most life insurance experts and financial consultants say you must have at least between 5 – 10 times your annual salary for a life insurance policy, so you could be looking at $3 million to $5 million of coverage if you make $250,000+ per year!
2. Life Insurance Income: Replacement for Primary Wage Earner With Family
Some households have a stay at home parent, or partner who works part time, with the other acting as the primary breadwinner.
It is vital that the primary wage earner have a sufficiently strong enough policy to ensure that their family is able to maintain their standard of living. In summary, the policy should provide enough money for the family to survive comfortably for an extended period if that income is lost.
Buying a policy in the million dollar range should be considered to ensure that the financial future of the spouse, and especially that of the the children is properly taken care of.
3. Life Insurance Income: Replacement for Couples Who Are Middle Class Earners
The bulk of Americans fall into the middle class range of income earners in the U.S. and most of this group tend to severely underestimate their life insurance needs. As many as 66% of Americans who have a life insurance policies are under insured.
Many of the reasons cited above, such as basing life insurance benefits requirements on current salaries and not taking into consideration future income increases from raises and promotions factor into this underestimation.
4. Life Insurance Income: Replacement and Debt for Middle Class Earners
Although income replacement is the most basic reason to buy life insurance, many Americans neglect to factor in their outstanding debts when deciding how much to purchase. Nearly everyone has various forms of debt that will be have to be paid off when they die.
Considering income replacement alone is not enough. Take into account all your current and future debt which might include:
- Rent or mortgage
- Credit cards
- Car loans or leases
- Recreational vehicles
- College tuition for children
- Final expenses
- Uncovered medical expenses for long term illnesses
All of these need to be considered when deciding how much life insurance coverage you need. When you factor them all together along with income replacement, buying $1 Million to $2 Million of term life insurance becomes a very practical necessity.
5. Life Insurance Income: Replacement for Middle Class Earners With Non-Working Spouse
Many families have a stay at home spouse or one who works in a much lower income bracket than the primary bread winner.
Although the primary breadwinner may think that an amount less than $1 million in life insurance coverage is enough, they are probably not considering the cost to family of the stay at home or lower income spouse dying first.
The non-working or part time spouse should also have a policy in place because there will undoubtedly be additional expenses incurred to cover what they do, as they provide vital services for the maintenance of the household and family.
The estimated value of a non-working spouse could work out to $15,000 per year…or much, much more – especially if you to have to hire a domestic worker to fulfill those same duties or if you have to pay for a child care facility.
When you factor in income replacement, debt and calculate the loss of the lower income earner’s (or stay at home spouse’s) services, buying $1 Million to $2 Million of term life insurance may make sense.
6. Life Insurance for a Taxable and Liquid Estate
America is very prosperous country, which allows many people to accumulate wealth in excess of $5 million or more. As of 2015, estates with a value of $5.43 million or less are exempt from Federal estate taxes. Estates with higher values may be subject to a whopping 40% tax rate.
However, there are many states which require estate taxes to be paid with a threshold of as little as $1 million.
Most estates will not have much in available liquidity, which means the heirs will have to sell assets, often at less than market value, to obtain the cash to pay for these estate taxes. There is a time limitation of around 9 months in which the tax payment is required.
Having $1 Million to $2 Million of term life insurance can re-mediate this problem effectively because it will do the following:
- Immediately provide liquid cash to pay estate taxes
- Effectively preserve the estate
- May enhance the estate value
7. Life Insurance for a Taxable or Non Taxable Estate with Charitable Donation
Americans are known for their generous hearts and many people have a charity which they are passionate about and want to give to.
Leaving a significant amount of money to an organization can be done separately from your estate. You can purchase a life insurance policy and name your charity of choice as beneficiary.
Buying a second life insurance policy to help fund a charitable cause, is an easy way to achieve this goal. This approach allows you to leverage your existing estate to an alternative beneficiary without diminishing what you would like to leave for your family.
$1 Million to $2 Million of term life insurance may make perfect sense when trying to achieve an objective such as this.
8. Life Insurance to Leverage the Worth of An Estate
You don’t necessarily need a large non-taxable estate to boost the financial fortunes of your family or heirs.
Buying $1 Million to $2 Million of term life insurance can enhance the overall fortunes of surviving family members, especially if the estate is well under the 2015 $5.43 million Federal tax estate exemption.
The proceeds of a life insurance policy may still be non-taxable, depending on state exemptions, and could greatly enhance the wealth of your beneficiaries.
9. Life Insurance for Self-Employed and Single Professionals
There are many ways to make money in the U.S. and there are plenty of folks that work for themselves.
As your reputation and client base grows – so do your wages. As an independent professional, you will need to buy and lease equipment, services and make contractual arrangements with suppliers and clients, to name but a few obligations.
When you add all these things together it comes out to a lot of money. You have to ensure that your life insurance policy will cover everything in the event of death.
Otherwise, your family will incur the burden of satisfying all your outstanding debts and contracts.
10. Life Insurance for Key Employees
As many as 71% of small or medium sized businesses have one or more key employees whose skills or abilities are essential to the survival and prosperity of the business. The impact of the loss of a key employee can severely diminish the ability of the business to run smoothly and could result in the following losses:
- Sales Revenue
- Current clients
- Vision, leadership, and direction (in the case of an executive)
Not to mention rehiring costs that include recruiting, training and time spent in a learning curve.
The loss of such a valuable employee needs to be sufficiently covered by life insurance and having a $1 Million to $2 Million of term life insurance could easily be the minimal amount your business might need to get back on track again.
11. Life Insurance for Business Partner
Many businesses have one or more partners involved in the enterprise that are vital to the ongoing success, or even survival of the enterprise.
Many partner agreements use a “Buy – Sell” agreement, where upon the death of a partner, the survivors purchase the deceased partner’s shares in the business.
The most convenient way to fund the purchase of a deceased partner’s shares is by using a life insurance policy which could easily be well in excess of a $1 million dollars.
This could be done through either:
- Cross Purchase Agreement
- Stock Redemption Agreement
12. Life Insurance for Employee Benefit Programs
Many businesses have to compete to attract the best and brightest candidates for employment. They often use incentives, not only to draw them in but to keep them long term. One way to achieve this is through retirement and/or executive bonus plans. Life insurance can be used to achieve such goals through the following instruments:
- Benefit programs
- Split Dollar plans
- Group Life Insurance
13. Life Insurance to Cover an SBA Loan
At some point, many self employed, small or medium sized business owners will need to borrow money to purchase real estate, equipment or fund other various needs to grow their business.
An SBA loan, which can easily be in excess of $1 – $2 million dollars, needs to be insured for the equivalent amount of life insurance before the loan will be approved.
Do You Need Million Dollar Life Insurance?
Does your household rely on $100k + of income? If so $1 Million to $2 Million of Term Life Insurance is a figure that you should seriously consider.
It may sound like a lot of money, but when you get done paying off debts, it’s not as much as you might think.
If you are looking to find low cost term life insurance, you are in the right place!
We have access to over 40 of the top life insurers in the industry and will find you the best possible rates. The premiums on $1 Million to $2 Million of Term Life Insurance are very affordable.*While we make every effort to keep our site updated, please be aware that "timely" information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.