It is no secret that an insurance policy worth a million dollars sounds extravagant for many people. However, that’s the amount most people need to meet their family needs and financial goals satisfactorily.
The truth of the matter is that most American citizens who have life insurance covers are underinsured.
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Contrary to popular belief, a million-dollar insurance cover is not as expensive as it sounds. Try to imagine a situation where you are out of the picture, and your family needs to move on with life – how much money will they need to spend every day?
Is it too much to pay a monthly premium of approximately $25 to $100 for a million-dollar insurance policy worth $1 million?
The best thing is to look for an insurance agent and check various life insurance policies and rates available.
An insurance agent will take you through several options and recommend an insurance policy commensurate to your financial needs.
Statistics on the cost of living
Before delving into the details about a million-dollar policy, it is important to look at some statistics on the country’s cost of living.
- The average cost of conducting a funeral in 2012 was $8,565
- The average tuition fee in a private college between 2014 and 2016 was $39,054
- The average childcare cost in most states in 2018 was estimated to be $18,58
- The current median price of a home is $226, 800
Understanding a Million Dollar Life Insurance Cover
A million-dollar life insurance cover is a policy document worth a million dollars that you sign with an insurance company. The contract is considered to be operational immediately after you deposit the first premium amount. It will remain to be active as long as you continue remitting the agreed premiums.
In case you pass away while the contract is still one, the insurance company will give the person listed as the beneficiary in the policy document will be given a total of one million dollars at once.
Besides, the insurance proceeds won’t be subject to taxation – unless you had listed your estate as the main beneficiary.
If you decide to purchase a million-dollar insurance policy, it would be important to seek advice from a financial planner or tax expert – to understand the financial implications.
What is the cost of a million-dollar insurance policy?
Several variables are taken into consideration when determining the cost of a million-dollar insurance cover. One of the first variables is the type of form of insurance you intend to purchase.
There are generally two types of insurance cover you can choose from. They include the following:
- Term life insurance: This is the most affordable type of life insurance you can get. However, it only covers death benefits. The insurance company allows you to buy a policy for a period called “term.” The term can be any period you agree with the insurance company. For instance, it can be one year, five years, 10 years, or even 30 years. The premiums for term life insurance are usually fixed for the period of the insurance cover. You can also extend the term of the policy. Some insurance companies also allow individuals to convert term life insurance into a permanent one.
- Permanent life insurance: A permanent life insurance cover is further categorized into three namely; variable, universal, and whole life insurance covers. Different insurance companies offer these policies in various designs. That’s why you should go through them carefully – to understand what you are exactly getting into. Besides, a permanent lice insurance cover is more expensive than a term life insurance policy. This is because other than the death benefits, there is another feature for cash accumulation. There is an algorithm used by insurance underwriters to determine how much premiums a person will pay. The algorithm works on a range of factors to come up with the exact cost.
Some of the factors include the following:
- Age of the applicant
- If you are a smoker or not
- Family history
- Health profile
- Medical exam results
- Hobbies and occupation
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Characteristics of a million-dollar insurance policy
The features or characteristics of a million-dollar cover depends on the type you choose. If it is a term life insurance policy, then the cover will protect you for the insurance company’s agreed period. It could be 5 years, 10 years, or 20 years.
Although most insurance companies allow policyholders to renew their contracts, term life insurance coverage can be relatively expensive if it extends to 20 years and above. This is because the premiums will have increased by the time 20 years lapse.
You can also decide to convert the policy into a permanent policy cover without necessarily taking a medical exam. The good thing about a permanent life insurance policy is that it has an extra feature where the beneficiary gets a lump sum amount besides the death benefits.
Is it essential to have a million-dollar insurance policy?
This question can only be answered individually. However, a million-dollar insurance policy makes a lot of sense – considering the uncertainties we always face.
As the head of a family, you need to assess your family’s financial needs and ask yourself this question: How will my family survive if I get out of the picture now?
It is easy to get into a comfort zone and forget what the future holds for your family. Things can get worse if you don’t plan well while you still have a chance.
The main objective of a million-dollar insurance policy is to guard you and your family against any eventualities.
Today you might be alive and healthy, but who knows what the future holds? That’s why you should conduct a proper assessment of your financial needs and make an informed decision.