- Many Americans are underinsured when it comes to life insurance coverage.
- It is recommended to get 10 times your salary in life insurance, but really, you should consider getting as much as you can afford.
- A million-dollar life insurance policy sounds like a lot, but due to inflation and the rising costs of tuition, it may be necessary.
- Your health, finances, and other factors determine how much insurance you will be approved for. Get as much life insurance as you can afford now and consider getting more later.
- Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »
Life insurance is something you typically don't think about when you're in your 20s. However, purchasing life insurance while you're young and healthy is the right time to get the best rates and the highest coverage amounts. That doesn't mean that you can't get insurance as you age, but it probably means that you will have limits on your death benefit amount and higher premiums.
Most people get life insurance to cover a mortgage, education, and other expenses so their family can continue paying the bills after they die. The goal of having life insurance is to ease the burden on your loved ones after your loss.
About 60% of Americans have life insurance and a quarter of them do not believe they have enough coverage, according to the Insurance Information Institute.
It is usually recommended to get 10 times your annual salary in life insurance. However, with inflation and the rising costs of tuition, or if you have a dependent with special needs, that might not be enough.
A million dollars in life insurance sounds like a lot, but generally you'll want to get as much insurance as you can comfortably afford each month. You might as well make sure you have the coverage you need now, as a future health scare may make it harder for you to purchase more later.
What is life insurance?
Life insurance is a contract between you and the life insurance company, where you pay premiums (monthly or annually) for a payout that your living relatives will receive upon your death, known as the death benefit. Should you die, the insurance company pays the death benefit to your chosen beneficiary.
The difference between term and whole life insurance
There are two types of life insurance: whole life and term life. Either can require a medical exam. Whole life premiums can be more expensive than term life premiums because they have a cash value component in addition to the death benefit. You pay a whole life policy during your lifetime and coverage is for your lifetime.
Term life, on the other hand, is considerably cheaper because it doesn't have a cash value component and coverage is limited to a term. Term life insurance covers a 10, 20, or 30-year period. If you die during that period, your beneficiaries get your death benefit. Term life insurance is generally recommended for any adult with a dependent. The biggest draw of term life insurance policies is the low monthly payments.
You have to qualify for a million dollars of life insurance
The underwriting process is how the insurance company determines your insurability. Underwriting is similar to the lending process you would go through to qualify for a mortgage or finance a car— determining how much of a risk you are and how much to lend you. The underwriting process collects information about your health (medical history), job, income, finances, and other personal information to determine how much they will insure you and what your premium will be.
Traditional insurance policies require a medical exam, which includes the collection of a blood and urine sample, as part of the underwriting process. People with certain pre-existing health conditions may be ineligible for traditional life insurance. Therefore, they may get no medical exam life insurance. Although there is no medical exam for this type of coverage, there is usually a health questionnaire.
If a disease is discovered during the underwriting process, it may make it more difficult to get coverage. That is why geneticists suggest getting private life insurance coverage before undergoing genetic testing, because the results may disqualify you for life insurance in the future.
Although you may select a $1 million dollar death benefit, the underwriting process determines the amount of coverage you will be offered. If you're offered $1 million in life insurance and can afford it, it may be worth the extra security for your loved ones.
Do you need a million dollars of life insurance?
When selecting your death benefit amount for life insurance, the rule of thumb is to select 10 times your annual income to cover the mortgage, education for dependents, and other costs if you die. For example, if you make $75,000 per year, then you would purchase a life insurance policy for $750,000.
If you are the sole breadwinner in your family or you have a child that has special needs and will need care as they age, you should consider getting as much coverage as possible. You might want more if you want to pay for your kids' college, pay off your family's mortgage, funeral expenses, or other debts.
A $1 million policy will be worth it if a health scare later makes you ineligible for coverage. Even though you can increase coverage amounts later, it becomes more expensive as you age. If you are eligible for $1 million in life insurance and can afford the monthly payments, it is best to get it now.
How much does a million dollars of life insurance cost?
Generally, you'll probably want to get as much life insurance as you can comfortably afford each month. If it would be a struggle to make your premium payments, it's probably too much for you.
We looked at sample quotes from three different insurance providers for a $1 million term life insurance policy with a 20-year term, for a non-smoker in good health:
| Nationwide | Guardian Life | State Farm | |
| 25-year-old man | $52.94/mo | $58/mo | $45.29/mo |
| 25-year-old woman | $40.69/mo | $47/mo | $45.29/mo |
| 35-year-old man | $54.69/mo | $65/mo | $55.69/mo |
| 35-year-old woman | $45.94/mo | $57/mo | $54.79/mo |
| 45-year-old man | $125.56/mo | $159/mo | $122.69/mo |
| 45-year-old woman | $94.06/mo | $119/mo | $119.19/mo |
Even if you are unable to get insurance 10 times your salary, or if you are on a fixed income and have a limited amount you can put toward your monthly premiums, you'll probably want to get as much insurance as you can afford.
Talk to your financial planner and life insurance provider about your life insurance options. Some insurance providers offer online calculators or quick quotes, while others require that you speak with an agent to get quotes. Even if you can't get as much as you want, some insurance is better than none at all.