When I was a rookie agent, I used to think $3 million, $4 million or $5 million in term life insurance was too much coverage for anyone.
Now, however, I know there are several good reasons a client might need that much coverage.
But be careful! A lot of agents out there would prefer to sell a coverage amount that’s best for their pocketbook, instead of what’s best for your needs.
So I’d like to guide you to the right size life insurance policy — whether that’s a million-dollar policy or more — and I can tell you how to find the best rates on your large term life policy.
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Why Purchase $3 Million to $5 Million of Life Insurance?
So who needs $1 million, $3 million, or even $5 million in life insurance coverage?
In a nutshell, most of these large policies exist to help high wage earners who are too young to have much in savings or a healthy investment portfolio.
Let’s face it. If you died today and no longer could provide a healthy income, the future would be a lot different for your family. Your spouse would have to re-adjust to a much different life — both emotionally and financially.
If your job is the family’s source of financial stability, your spouse and children may have to move, put off college, or deplete whatever savings you have in place now.
The right life insurance policy could help your loved ones maintain everything you’ve already worked for. Your family could use your life insurance coverage amount to pay off the house, to put away for college, or to keep from having to make drastic budget changes as they mourn your loss and rebuild a new life.
How Much Life Insurance Coverage Do I Need?
A lot of financial advisors and independent insurance agents recommend buying a term policy large enough to replace your income for at least 10 years.
If you earn $200,000 a year, you’d need $2 million in life insurance to meet this requirement. This is just a general rule of thumb. It’s not a hard-and-fast rule for everyone.
For example, you may need more than 10 times your annual salary if you’ve just bought a house and have a jumbo mortgage which would wipe out the policy’s face amount.
You may need more if your kids plan to study at a private university. You may need more if your future dreams include a vacation home.
On the other hand, you may need less than 10 times your salary if you already have a significant amount of money saved or invested and your loved ones could live off the proceeds. You may also need less coverage if your kids are almost grown and the house paid off.
The amount of life insurance you buy should reflect the reality of your life as projected decades into the future. This is true for your term length, too. You may need a large policy for only 10 years, for example. Or, if you’re just starting out in life, a 20-year or 30-year term policy would be best.
The Cost of a Million+ In Life Insurance
Life insurance quotes for your million dollars plus policy will vary significantly based on your underwriting conditions which include your health and age. Your term length and policy type will be huge factors, too.
Here are some quotes that can give you a ballpark idea. These quotes pertain to a male, non-tobacco user who is in excellent health as proven by a medical exam.
| AGE | $3,000,000 | $4,000,000 | $5,000,000 |
|---|---|---|---|
| 30 years old | $99.00 | $131.00 | $162.00 |
| 40 years old | $150.00 | $198.00 | $246.00 |
| 50 years old | $431.00 | $572.00 | $714.00 |
| 60 years old | $1,231.00 | $1,640.00 | $2,059.00 |
| 70 years old | $4,654.00 | $6,205.00 | $7,755.00 |
| 80 years old | $14,138.00 | $18,849.00 | $23,560.00 |
*Please note all quotes above are monthly premiums for a male buying a 20 year term policy for a non-smoker.
The two exceptions for $4 million of life insurance and $5 million of life insurance 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.
Also keep in mind a 10-year term would cost less and a 30-year term would have a much higher average cost. Term lengths are a huge price factor when you’re buying life insurance.
What Are The Financial Requirements?
Not every applicant will qualify for a million dollars or more in life insurance coverage. Even if you could afford the monthly premiums you still have to qualify to be approved for the coverage by the life insurance company.
The younger you are, the more coverage you can qualify for and apply for. That’s just how life insurance works.
Your annual income will also be a factor the insurer considers. Insurance companies will use your pre-tax income — your gross pay; not your net pay.
Life Insurance Age & Income Requirements
This table will help you assess the amount of coverage you can qualify for:
| Ages | Maximum Amount Of Coverage |
|---|---|
| 18-30 | 35 times your gross (pre-tax) income |
| 31-40 | 35 times your gross (pre-tax) income |
| 41-50 | 25 times your gross (pre-tax) income |
| 51-60 | 20 times your gross (pre-tax) income |
| 61-65 | 15 times your gross (pre-tax) income |
| 66-75 | 10 times your gross (pre-tax) income |
| 76-80 | 5 times your gross (pre-tax) income |
Can You Qualify With Health Conditions?
I mentioned the importance of good health above, but I didn’t include any details.
This topic deserves a lot of attention because your health will determine how much life insurance you quali