When someone dies, those left behind can struggle to pay off debt, replace that lost income, cover burial costs and more. Investors purchase life insurance to address those financial concerns and take care of their loved ones. While the amount of life insurance needed varies by family, buying a million-dollar life insurance policy is the goal for many investors. You can work with a financial advisor to determine how much coverage you need and what your options potentially are.
Why Do People Buy Life Insurance?
People buy life insurance for many different reasons, most of which are personal to their personal or financial situation. However, it generally boils down to taking care of those financially affected by their death. Let’s take a look at five of the most common reasons people buy a million-dollar life insurance policy.
1. Replace Lost Income
When someone passes away, they no longer earn money from their career. In many cases, households need income from both spouses to meet their monthly expenses. Life insurance proceeds help to replace lost income from the person who passed away.
2. Pay Off Debt
To alleviate the financial stress of someone passing away, paying off the debt that affects the family’s money can make sense. Examples of these debts include a home mortgage, student loans, credit card balances and business loans. Using life insurance to pay off those debts eliminates stress and monthly payments.
3. Paying for College
Many parents want their children to go to college and plan to cover some of the cost of tuition. For some families, those plans get interrupted when a death occurs. Life insurance helps to keep the dream of college alive and helps your children build a brighter future.
4. Buying Out a Business Partner
When you go into business with a partner, a “buy-sell agreement” is a smart idea. These insurance policies fund the purchase of the deceased’s share of the business from the surviving beneficiaries. This eliminates the surviving partners from getting entangled in family squabbles or dealing with a new partner with different ideas for the direction of the business.
5. Giving to Charity
Life insurance policies are an affordable option to make a big impact with a charity. Many investors want to leave a lasting legacy with causes that they care deeply about. Some investors leave money to a charity through a donor advised fund. This allows their beneficiaries to control how to distribute the money over time.
What Affects the Price of Life Insurance?
The price of life insurance varies by a number of factors. Life insurance premiums change based on your answers to the following questions:
- Death benefit. How much will your beneficiaries receive when you pass away? The larger your death benefit, the higher your premiums will be.
- Type of life insurance. Term and permanent are two broad categories of life insurance. Term insurance is for a specific period, while permanent covers you for your whole life. Term insurance is generally the cheaper option.
- Length of term insurance. When you buy term insurance, you’ll pay the same premiums for a set period of time. After that, they adjust each year according to a preset schedule. The shorter the term, the lower the premiums.
- Gender. Statistically speaking, women live longer, so they have lower premiums.
- Age at issue. Your age when the policy is issued impacts the cost of life insurance. The younger you are, the lower your premiums will be.
- Medical exams. Insurance companies may charge more based on your medical history, blood tests and other medical factors.
- Riders. Some life insurance policies allow investors to purchase additional benefits and features. Each of these options increases the amount that you’ll pay.
- Life insurance company. Premiums vary from one insurance company to the next based on their underwriting criteria and target customer.
- Monthly vs annual premiums. Insurance companies charge an extra fee for the convenience of making payments monthly instead of annually.
How Much Is a Million Dollar Life Insurance Policy?
If you’re wondering how much a million dollar life insurance policy is, the answer is that it varies based on many factors, including those listed above. Here’s a table showing sample monthly premiums for a few different investor profiles.
Range of Monthly Premiums Based on Age, Gender & Policy Term
|35||Female||30 Years||$40 to $82|
|45||Male||15||$65 to $125|
|55||Female||20||$158 to $288|
|65||Male||10||$358 to $659|
*Assumes excellent health and term insurance premiums are paid monthly. Married with children and living in California.
The Bottom Line
Buying life insurance is a key component of a comprehensive financial plan. There are many different types of life insurance policies available. Contact your financial advisor to discuss your life insurance coverage needs and how much a million-dollar life insurance policy would cost you.
Tips for Buying Life Insurance
- With so many available options, picking the right life insurance policy for your needs can be challenging. You can get the help of a financial advisor to walk you through the process and help make sure you have enough coverage for your family. 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.
- Before buying a life insurance policy, tally your financial needs to determine how much coverage you need. Our life insurance calculator helps you figure out what your death benefit should be based on your goals.
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