Articles, Life Insurance

Is a Million Dollar Life Insurance Policy Worth It?

Written By: Megan Miller
Reviewed by: Mike Reyes
Last Updated April 8, 2023
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a family celebrating after creating a wealth plan

Most people don’t even think about life insurance in their 20s. However, while you’re still healthy and young, you have enough time to consider various coverage amounts and rates. Of course, you can get insurance when you’re older, but in this case, you must deal with various limitations regarding the premiums and coverage available. A typical American family needs to pay a lot of bills, so there’s no surprise that many people get life insurance so that it can cover education, mortgage, and many other expenses. This way, their families can pay the bills after they die, and by getting life insurance, you can ease their burden that will already be very heavy when you pass away.

However, getting good insurance can be a tricky task. Roughly 60% of Americans have life insurance, and only 25% say they have sufficient coverage. A common suggestion is to get life insurance equal to your ten annual salaries. Still, such an approach often turns out to be ineffective because of inflation, the constant growth of tuition costs, and many other factors.

You should consider many important factors to evaluate what coverage adequately meets your needs. If you consider the dynamics of the economy, you might realize that you need a lot more money than you expect. Million-dollar insurance may sound like it’s too much, but the truth is that you should look for maximum coverage as long as you can afford monthly payments.

You may consider getting million-dollar life insurance if you earn $100,000 a year, but it might also be the right choice if you have a smaller yearly salary, but your family has substantial debts. Besides, getting million-dollar insurance may be more affordable than you think. Purchasing life insurance while you’re young can be a great choice because you’ll be less likely to buy it when you get older, as health problems and other difficulties may not let you focus on the future.

What Is Life Insurance?

Life insurance is a contract you sign with an insurance company. Once you’ve signed the contract, you’ll pay monthly or annual premiums so your beneficiary will receive a payout when you pass away. This payout is called the death benefit. You can choose from dozens of options with different amounts of payouts and premiums. Therefore, knowing how life insurance works and considering numerous factors is essential to choose the right solution.

Whole Life vs. Term Life Insurance

Before we get into details regarding the payouts and rates, it’s important to note that insurance companies offer different life insurance policies. You can choose term life or permanent life insurance. For both types, you might need to go through a medical exam. Permanent and term life insurances are similar to owning or renting a home: term insurance only lasts for a specific period. You may reapply for coverage when the time is up, but the premiums might increase as you age.

Term life insurance is a more affordable option, but permanent insurance offers cash value. It means that such insurance policies offer a death benefit and cash value. All permanent insurance policies offer tax-deferred cash value that constantly grows. You can use the cash value as collateral or take a loan on it, all on a tax-deferred basis.

Although “permanent life insurance” and “whole life insurance” are often used interchangeably, whole life insurance is just a type of permanent insurance. You may also choose other types of permanent life insurance, including variable, universal, variable universal, guaranteed universal, and indexed universal policies. Insurance companies offer different types of policies that involve different premiums. However, permanent life insurance policies are generally more expensive than term life insurance.

Term life insurance may cover periods from 10 to 30 years. Your beneficiary will receive the death benefit if you die during this period. Term life insurance is a good solution for adults with dependents, and the main advantage of such policies is low monthly payments. However, permanent life insurance policies are costly at the beginning. As you overpay in the early years, your money earns interest, and you can use this money to minimize the cost of your million dollar policy as you age.

Eligibility for a Million-Dollar Life Insurance Policy

smiling woman

As mentioned above, a million-dollar life insurance policy may appear excessive. Still, if you consider the growing tuition costs, inflation, and other factors, you might realize this is the right solution. If you’re considering such an option, it’s essential to know whether or not you’re eligible for such an insurance policy in the first place.

Insurance companies should consider your age and salary information to determine whether you’re eligible for a million-dollar life insurance policy. These are the main factors determining how much coverage you can qualify for. Most companies enable clients to get life insurance equal to 10 to 30 annual salaries, but the terms may also depend on your age. Usually, younger clients are eligible for higher coverage amounts.

Most often, if a client is employed and eligible for coverage with their current health, they don’t have any problems with qualifying for life insurance coverage. Your level of income can not only impact the coverage that you’re eligible for but also help you understand what coverage you need. For example, if you earn $30,000-$40,000 a year, a million-dollar life insurance policy might be too much. However, people who earn $60,000-$70,000 a year can qualify for a million-dollar policy with most insurance companies.

How to Qualify for Million-Dollar Coverage?

You’ll have to go through the underwriting process to qualify for a million-dollar policy. Underwriting is similar to the lending process you must deal with when applying for a mortgage. An insurance company collects your income, job, and medical history, to determine your insurability. Besides, you should complete a medical exam that involves the collection of urine and blood samples.

People with some pre-existing conditions may avoid a medical exam, but they may also be ineligible for some traditional insurance policies, and they may also complete a health questionnaire. If the company discovers a disease during underwriting, you may have problems getting your coverage. Therefore, we recommend getting your life insurance coverage before undergoing genetic testing because the results may make you eligible for the desired coverage.

The Underwriting Process in Detail

All insurance companies have their own guidelines regarding the underwriting process. However, we gathered the most common steps of this process so that you can know what to expect.

MIB check

This is the very first step that happens even before your underwriter gathers any detailed information. MIB, which stands for Medical Information Bureau, is a trade group that helps insurance companies fight fraud and shares medical data. Thanks to MIB, underwriters can see detailed information from your medical records from other insurance applications that you’ve filed in the last three to five years.

There’s nothing wrong with applying for insurance with different companies; the number of applications won’t hurt your classification. Your information from previous insurance companies can help underwriters see diagnoses, treatments, and impairments reported by previous underwriters.

Application quality evaluation

Once the insurer has checked the MIB information, they check your life insurance application to ensure it contains the correct information. Often, applications are incomplete because people may forget to include some information or make a mistake. If the missing information isn’t directly related to your medical history, the underwriting process won’t take longer because of an incomplete application.

To verify the information from your application, the underwriter may call you to conduct a phone interview. Usually, such calls focus on your health history, finances, and hobbies and don’t take more than 30 minutes. Once the underwriter verifies all the necessary information, the underwriting process on your million dollar policy begins. Every step may slow down the process, but each of these steps is necessary to make a decision regarding the premiums.

Medical examination

a person lying on a bed with another man standing behind him

While the previous two steps are just a preparation for underwriting, this is the first step of the underwriting process itself. A medical exam within the underwriting process is no different from your regular checkup. The only difference is that you don’t need to pay for it. A medical technician can perform the exam at a lab or come to you so that you can do it at home.

The underwriter will receive the results of your exam. When evaluating your application for a million dollar policy, underwriters consider several categories of medical information. First, your medical information includes basic measurements, such as height-to-weight ratio and other parameters. Blood pressure levels are also significant because they can significantly impact the rates as you age.

Another part of the examination is a blood test. A regular blood test can help determine potentially risky factors, such as diabetes, heart disease, high cholesterol, etc. Along with the blood test, you must also take a urine test to tell the insurer whether you’re using drugs. Such tests can detect all kinds of drugs, including cocaine, opioids, barbiturates, amphetamines, etc.

Drug usage is considered a risk factor, so you will have to pay higher premiums if you use any drugs. Many insurers, however, have less strict policies regarding marijuana. Once you’ve completed the medical exam, you can reuse it to apply for other insurance. For instance, you may apply for life insurance from another company or disability insurance. Even if a particular insurance company pays for your medical exam, you’re not obliged to choose their insurance.

Attending Physician Statement

doctors discussing

If your medical exam detects problems, the underwriter may order an Attending Physician Statement (APS). This is a summary of your medical history from the doctor’s perspective. An APS contains information about your conditions treated by a particular doctor. With an APS, your insurer can learn how long you’ve been treating any conditions, your symptoms, and your prognosis.

For instance, if your medical exam revealed high blood pressure, an APS can help the underwriter understand the cause and get other details. An APS can take a lot of time, and if your underwriter requests it, the whole process may slow down by a few days or even a few months.

Prescription check

The underwriter should also check all the prescribed medications you’ve taken during the last three to five years. This step may or may not be necessary depending on other medical details. Usually, a prescription check is required when applying for a high coverage amount.

Motor vehicle report

A motor vehicle report reflects your driving history, including your DUI convictions, reckless driving tickets, accident reports, etc. People with clean driving records can get lower premiums, and if you have a recent DUI record, you may even be denied life insurance.

Actuarial tables

Underwriters also use actuarial tables to evaluate how likely you are to die at any particular age so that they can determine how risky you are for the insurer. An actuarial table represents a statistical analysis of your life expectancy. Your position in the table depends on various aspects, including your medical diagnosis, occupation, smoking status, and family history.

Underwriters use two kinds of actuarial tables: mortality tables and build tables. Mortality tables show the mortality probability of a particular population. Such tables are based on age and gender and don’t consider each person’s unique health profile. There are different rates for men and women, and your gender may also be why you cannot get the insurance you want. However, the positive side of gender inequality in the insurance market is that women can pay lower premiums.

Along with mortality tables, underwriters also use build tables. Build tables are based on the body mass index so they help evaluate your life expectancy more precisely. If you’re obese or overweight, life insurance might be more expensive for you, but the rates may get lower if you lose weight after getting insurance.

Credit system

Once the underwriter has checked all the medical information and other details to determine what insurance policy you’re eligible for, they may also use a credit system so that you can get lower premiums. For instance, a chronic illness may result in a Standard classification. A credit system enables you to benefit from more affordable premiums if you undergo preventative care and actively work on improving your health.

The prescription check and APS can help the underwriter understand what you’re doing with your health problems and how likely your health situation will get worse. You can also reapply for life insurance after you improve your health to get lower premiums.

Do You Need A Million Dollar Policy?

a happy woman who learned how to pay herself first

Most people choose coverage equal to five to ten annual salaries, but you should consider many factors to choose the right insurance policy for yourself. You may want a policy covering your mortgage and other debts, your child’s education, child care, healthcare costs for non-working relatives, and cosigned debts. Besides, your life insurance should cover the cost of a funeral.

If you think of how your family can afford such expenses without you, you may realize that million-dollar life insurance is the right option for you. You may also consider having additional coverage to lock in an affordable price for the next ten, 20, or 30 years. It can be difficult to determine the right amount of coverage for a stay-at-home parent because they don’t earn a salary. Usually, such partners are eligible for the same coverage as their working spouses.

Applying for a million-dollar life insurance policy when you’re young is an excellent solution because you may become ineligible for such coverage as you get older and your health worsens. You can increase your coverage later, but it will be more expensive as you age. Therefore, if you’re eligible for million-dollar life insurance now and can afford monthly payments, applying for it as soon as possible is the best solution.

How Much Does Million-Dollar Life Insurance Cost?

man writing on glass board

A good solution is to get as much insurance as you can afford. However, you should make sure that you can afford the chosen insurance. If you realize that it will be difficult for you to pay premiums, you should choose another policy. Since you will need to pay for your insurance year after year, you must be realistic about your capabilities and remember that you may deal with unforeseen circumstances requiring additional spending.

Different insurance companies have other pricing systems. For instance, if you don’t have any serious health problems and you’re a non-smoker, a $1 million term life insurance policy with a 20-year term may cost from $40 to $160 per month. Usually, the rates are lower for women. The difference is because rates are calculated depending on the client’s age.

Million-Dollar Life Insurance Policy Example

When you’re 25, finding million-dollar coverage for about $50 a month is possible. But, that amount will rise significantly i.e. >$150/mo if you were 45. This is another reason you may want to purchase life insurance between studying and living life. The older you are, the more expensive the insurance, and the less likely you are to qualify for a million-dollar life insurance policy.

If you cannot get ten times your salary in insurance, if you can only dedicate a limited amount of money to your monthly premiums, or if you’re on a fixed income, you should still try to get as much insurance as possible. Your needs may change over the years. Remember that marriage, children, caring for old parents, divorce, retirement, and other factors may change your financial situation dramatically.

Therefore, a great solution is to hire an accountant, financial advisor, and estate attorney so that these professionals can help you set clear goals and choose an insurance policy that corresponds to your needs. However, even if you cannot get the insurance you’re looking for, having some insurance is always better than not having it at all.

Final Thoughts

The downside of getting life insurance is that you must consider mortality and death. At some point, all of us will pass away, and we will only remain alive in the memories of our loved ones. If you want to make sure that your family will live a decent life even after you die, you should think of how much you’re worth financially.

Many people think they don’t need million-dollar life insurance because it may seem too expensive. However, the truth is that if you consider all the things that your family may need money for, you might realize that $1 million is exactly as much as you need or even less. No matter what insurance you’re looking for, the best solution is to purchase it as early as possible because getting more coverage and lower premiums when you’re young is much easier.

Many companies offer term life and permanent life insurance, and all companies have different pricing policies. Therefore, if you want to figure out what insurance you should get and what company you should choose, the best solution is to talk to a financial advisor and analyze your family’s financial needs in detail.

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