A $2 million life insurance policy may sound like a lot, and you might think so much coverage must be very expensive. But when you consider all the expenses your family will have if you pass away – a mortgage, student loans, credit card debt, funeral costs – $2 million may be a more realistic figure than you realize. Depending on the number of years your plan is for, a $2 million life insurance can be less than $100 per month. The right financial advisor can help you find the right investments to meet the needs of your financial plan and properly prepare you for retirement.
Who Needs Life Insurance?
Life insurance is not something that is reserved for wealthy families. In fact, it could be argued that it is the opposite since the purpose of life insurance is to protect your family from financial hardship after you pass away.
Life insurance helps cover not only final expenses associated with your death but also helps replace the earning power on which your family depends. That means it will help with big expenses such as funeral costs or a college fund. But it helps cover ongoing costs, like groceries and utilities.
If there are people who depend on you financially, there is a good chance you may need life insurance. If your loved ones would struggle financially without you, then you should probably consider this type of coverage.
How Much a $2 Million Policy Costs
How much this amount of coverage will cost you depends on several factors. However, some of the biggest factors are your age and the type of insurance. Other factors include your gender, height and weight and overall health. As mentioned, the type of life insurance policy you buy is also a big factor in the cost; in general, term life insurance policies are much cheaper than whole life policies. Term life insurance policies expire after a set number of years, while whole life policies don’t expire until you pass away.
With a term life policy, you won’t receive a payout if you are still alive when the policy expires. This helps explain why term life policies are usually much cheaper than whole life policies. And the shorter the policy, the lower the premium. A healthy 30-year-old, for instance, can often qualify for a 20-year term life policy at a rate of less than $100 per month. In fact, the rate might be significantly less than $100.
Whole-life policies are usually much more expensive since they provide a guaranteed death benefit. Typically, the monthly cost is five to 10 times more than the cost of term life insurance. However, whole life insurance also has a cash value, while term life does not.
How Much Life Insurance do You Need?
How much life insurance you need depends entirely on your situation. Remember, life insurance is intended to cover all your final expenses, such as funeral costs, as well as any outstanding debt. But it is also meant to replace your earning power if you have dependents.
A general rule of thumb is that you should have five to 10 times your annual salary in life insurance coverage. By that rule, you only need $2 million in coverage if you make $200,000 to $400,000 per year.
Again, though, finances can be complex, and what is right for someone else may not be right for you. Rather than using a rule of thumb to inform your decision, you should sit down and get a complete financial picture and all the costs your family with be left with if you pass away.
Keep in mind that it is possible to have too much coverage. If the cost of your passing will realistically only be $1 million at most, it probably isn’t worth paying higher premiums to have $2 million worth of coverage. Therefore, it is important to have a complete financial picture before deciding.
Bottom Line
Life insurance can be very useful for a lot of people, but especially for those who have dependents. If people depend on you financially, then it can be a good decision to get life insurance. The literal million-dollar question is whether $1 million of life insurance will be enough. For some people, it’s more than sufficient. For others, $2 million is necessary. However, if you are young and healthy, you might be able to qualify for a $2 million policy for less than $100 per month.
Tips for Buying Life Insurance
- Deciding how much life insurance isn’t always easy. After all, there is a lot to think about. A financial advisor can guide you through major financial decisions, like buying life insurance. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- You might think a $2 million life insurance policy would be expensive, but that isn’t always the case. Those who are young and healthy can qualify for a $2 million term life insurance policy and pay less than $100 a month. To estimate your life insurance premium, get a life insurance quote.
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