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 qualify for and how much you’d pay in monthly premiums.
There’s no question about it: Health conditions complicate the underwriting process, making life insurance cost more or even seemingly impossible to get.
In a perfect world we’d all get preferred plus life insurance rates, but real life doesn’t work that way.
RELATED: Check Sample Life Insurance Rates by Age (No Personal Info Required)
So life insurance companies will want to know about your cholesterol, diabetes or high blood pressure readings. They want to make sure these sorts of medical conditions are under control.
In most cases you’ll have to take a medical exam to buy a policy this large. Underwriters will also check your pharmaceutical records to assess your risk of dying prematurely.
If your health is under control, you have a pretty good chance of qualifying even if you have a chronic health condition, though you probably will see some higher premiums.
But add in a dangerous job, a high-risk hobby, or a shaky driving record and you could complicate the underwriting picture even further. (This could be true even if you are in good health.)
Ultimately, an insurance company wants to know your risk of dying while covered by their policy because if you died they’d have to pay your large policy’s death benefit and would stop benefiting from your incoming monthly premiums.
If you have a complicated life insurance application, I strongly suggest working with an independent insurance agency such as ours. We can help you tailor a unique solution to your unique problems.
Tax Benefits of Buying A Multi-Million Dollar Term Life Insurance Policy
By now you know about the financial stability you could leave your loved ones if you had a multi-million dollar life insurance policy.
As agents, we talk less about the tax implications of life insurance, but a large policy amplifies these effects:
- A life insurance policy can provide money that is immediately available to your estate to cover estate taxes.
- You can also remove some or all of the death benefits from the estate, so it is not subject to estate taxes.
- In the vast majority of cases life insurance payouts are tax free because premiums were paid with after-tax money.
What If You Wanted To Give Money To A Charity?
Some of our clients are financially stable, have grown children, and healthy investment portfolios. On the surface they don’t need a million dollar term life insurance policy.
But they also know they could use the insurance policy for philanthropy. By buying a large policy and naming a charity or a foundation as the beneficiary, you could leave quite a legacy.
- Life insurance can avoid probate and avoid any difficulties in settling the estate.
- More money can be given to the charity which allows them extra funds for other projects.
- Large donations attract more publicity which can garner more donors.
- Your estate will get a tax deduction.
- The death benefit is quite a return on your investment in premiums.
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What About Business Owners Who Need Coverage On Employees?
Life insurance policies have high value to business owners. Getting coverage on your key employees could help your business survive the turmoil that a partner or key executive’s death would create.
Typically, we wouldn’t sell a million-dollar life insurance policy for this purpose, though some business owners do need this much.
Some business owners also ask about providing group life insurance as an employee benefit. We can help with this, though no one would ever think about buying such large policies for this purpose.
What Type of Insurance is Best for $3 Million, $4 Million, or $5 Million in Coverage?
The type of policy you buy will directly impact the cost of your life insurance premiums.
Term Life Insurance
If you’re looking for life insurance for a set period of time, such as 10, 20, or 30 years, you’ll need to buy term life insurance.
Term insurance is the least expensive type of policy because the coverage has an expiration date. This makes it the best option for a large death benefit like a million dollars or more.
Term insurance works best when you’re young and have a growing family. By the time the term expires, you may no longer need the coverage. By then you should have more in savings and less dependence on your wages to support your family. By then you may also have the house paid off and have kids who are financially independent!
Be sure you get term life insurance quotes for the right term length. Once the level term expires you’d see a drastic increase in premiums. But most people let the policy lapse rather than paying more, especially if they bought the right term length.
When you’re buying a $3 million or $5 million life insurance policy, term insurance is most likely the way to go.
Whole Life Insurance
For estate planning, charitable, or permanent life insurance needs, many shoppers want a policy that provides lifetime coverage.
Whole life insurance provides this permanence but we don’t recommend it for a million-dollar policy.
It’s overpriced, and you can typically get the same coverage for 30% to 50% cheaper using guaranteed universal life insurance.
This guaranteed universal policy is similar to whole life insurance but without the cash value accumulation — and that feature brings the price down considerably.
So you pay the lowest amount possible (only the cost of insurance) to provide guaranteed coverage for life, whereas in whole life, you pay extra premiums that build up as cash value.
We primarily sell guaranteed universal life and term life insurance at $3 million, $4 million, or $5 million. The life insurance policy cost for whole life or even a standard universal life policy at these levels is off the charts if even available at all.
How To Buy a Million Dollar+ In Life Insurance Coverage?
If you’re in the best health class — which many young and healthy people are — you can buy a large policy off the shelf from most of the best life insurance companies out there.
This is assuming, of course, you can qualify financially based on your annual income and life insurance needs and can afford the life insurance rates that come with the policy.
But if you have a more complex underwriting picture, I suggest working with an independent life insurance agent to find coverage customized to your needs.
There are so many types of life insurance policies and so many life insurance companies to choose from. And your unique situation will call for a unique approach.
For example, why should you waste time applying for a Banner Life insurance policy when I know for a fact that someone in your health condition won’t get approved by that company?
You’ll save a ton of time — and probably a lot of money too — by working with someone who knows the nuances of the nation’s life insurance companies and knows where to find the best rates for your situation.
This is especially true when you want the financial security of a million dollar life insurance policy.
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