Do you worry about your family being taken care of if something tragic happened to you? You’re definitely not alone. Many lawyers are interested in having the right insurance in order to support their families in the event of an accident or sudden death. Surprisingly, getting a million-dollar life insurance policy is actually not that difficult. In fact, it’s a small enough amount that you can often get it without the need for extensive medical testing.
In this in-depth guide, we’ll be looking at everything lawyers need to know about obtaining a million-dollar life insurance policy, what term life insurance is, the factors involved in obtaining one, and whether or not you actually need a million-dollar policy.
What is term life insurance?
Term life insurance is a type of life insurance policy that offers coverage for a particular time period. In many scenarios, it is referred to as “pure” life insurance because it is designed specifically to protect the insured party’s dependents in the event of premature death. For those that have a term life insurance policy and die within the outlined terms, their beneficiaries will receive the life insurance payout. There is no other value involved in term life insurance.
You can choose the specific term when you purchase the policy. The most common terms are either ten, twenty, or thirty years. As with most insurance policies, the payout (which is formally called the death benefit) and the premium remain the same throughout the entire term.
Your family’s need for life insurance will usually end near the time the term for the payout expires, as your children will have grown, your house will be paid for, and there should be enough money in your widowed spouse’s bank account to offer them emergency support.
Term life insurance is superior to whole life insurance because it allows the insured to choose their life insurance policy length, doesn’t constantly fluctuate when it comes to premiums, offers a low premium, and guarantees a set payout amount. Term life insurance is usually cheap because it’s temporary and realistically doesn’t have cash value because, in most cases, a family will not receive a payout because the insured party will not die during the term.
When should I choose term life insurance?
There are a few situations in which term life insurance would be an excellent choice.
If you need life insurance in order to replace your income over a particular period of time, such as the years you’re going to be raising children and paying off your home, term life insurance would be a great choice.
If you need the most affordable coverage possible, term life insurance would also be a great choice.
If you believe you may want whole life insurance but can’t currently afford it, term life insurance could be a good choice. Most term life insurance policies can be converted to permanent coverage if needed, though the deadline for converting policies varies by company and policy.
There are a couple of things you should look for when shopping for term life insurance. To start, you will need to choose a term that coincides with the expected number of years the insured party will be paying the bills. You should also make sure you purchase an amount that your family would definitely need in the event you died and could not provide income for them. The payout essentially should replace your overall income with just enough extra to help your family pay for funeral and death expenses. This income should also help your family pay for specific necessary services that you are performing, such as care for an elderly parent, childcare, etc.
Which brings us to our next point– Do you actually need a $1,000,000 term life insurance policy?
Determine if a $1,000,000 policy fits your needs
If you’re not sure if a $1,000,000 term life insurance policy actually fits your needs, it helps to consider what exactly such a hefty policy would cover. More isn’t always better when it comes to life insurance, but you need to make sure you can cover your income. Purchasing too little of life insurance coverage may leave your family without enough money in the event of your death. Purchasing too much life insurance coverage may eat away at savings when it doesn’t need to. Like we mentioned early, most term life insurance policies are not fulfilled because not many people die during the allotted term.
In most cases, a good rule to stick to when considering life insurance coverage is to have coverage that is around ten times your yearly income. So, if you earn $100,000 or $150,000 per year without much fluctuation, a million-dollar life insurance policy would be an excellent choice.
You will also need to consider your debts. If you earn less than $100,000 per year but have some hefty debt, a million-dollar policy may be a good idea. Add up what debts you have and how those debts may grow through the term, such as a home mortgage, law school student loans, or medical debt.
Income and debt are not the only things to consider, either. You will also want to account for other costs that your dependents or beneficiaries might face. This depends largely on your lifestyle and individual family needs. If you’re the primary caregiver for someone who is disabled and needs things like transportation, nurses, or other things, you may want a heftier policy. If you are an ex-pat or immigrant and will need to provide traveling expenses for attendees at your funeral, that’s another factor to consider. Take the time to evaluate exactly what you’re doing that will need to be replaced in the event of your untimely death.
Your beneficiaries can use your life insurance payout however they wish. That money can be used for everything from school tuition to medical care to other important daily expenses.
Even if you are young, a term life insurance policy of $1,000,000 should be considered. Though the premium rates for a term policy rarely budge, the cost of the policy increases more and more each year that you age. A term life insurance policy will be cheaper when you are in your twenties compared to when you are in your sixties, so it would be wise to lock in those lower premiums when you have the chance.
How much does a $1,000,000 life insurance policy cost?
A million-dollar life insurance policy may not be quite as expensive as you think. If you are a healthy person in your thirties, you could easily buy a twenty-year term life insurance policy for as little as $35-40 per month.
Keep in mind that the term length of the policy will also affect how much your premium will be. A thirty-year term monthly premium will be higher than a twenty-year term monthly premium.
We made this tool so you can check your rates painlessly. Give it a spin.
What factors influence the price of a life insurance policy?
Overall, the total final cost of a million-dollar life insurance policy depends significantly on your age and where you fall into a health classification. Sometimes, you may not even have to do a health classification to score a million-dollar policy. This depends on the company you decide to purchase the policy from. However, you may need to do one in order to get life insurance or get a lower monthly premium.
For example, a non-smoker will have lower rates than a smoke, a man will often have a higher rate than a woman due to genetic diseases, a person with no known family history of early death will have lower premiums than someone who does, etc.
Here the different things most insurance companies will test for in a term life insurance policy health screening:
● Physical body makeup. The insured’s gender, age, body mass index, and other physical aspects.
● Lifestyle choices. This is a pretty big factor that insurance companies will consider. If you love free-climbing mountains, work a job that is risky, or engage in recreational drug use, that could be a red flag that you are more likely to die during the term of the policy.
● Medical history. If you have had surgeries or hospitalizations in the past, an insurance underwriter will need to evaluate whether or not those factors will indicate your current health.
● Smoking. Smokers usually pay significantly higher rates for life insurance when compared to non-smokers.
● Family history. The medical history of your parents or extended family can indicate to an underwriter the likelihood of you developing hereditary illnesses.
Can everybody get a million-dollar life insurance policy?
This depends on your specific age and the insurance carrier you decide to go with. There are limitations on just how much insurance you can purchase, and a carrier will need to evaluate whether you are purchasing an amount of coverage that is reasonable for your specific needs.
This can be based on things like your income, your overall net worth, your current financial stability, and what kind of life insurance policies you may already have. In some cases, a carrier may come to you with a lower insurance offer because the amount you wanted was not reasonable for your income or because you have too many life insurance policies already. However, the “ten times your annual income” rule is usually pretty firm.
Young people are much more likely to score a million-dollar policy. Younger groups of people can apply for term life insurance coverage that is nearly thirty times their incomes, but older groups can usually only apply for five times their income or even less. When it comes to income, a law school student with another year of classes may not get the million-dollar policy they applied for because they have no income yet. However, once this type of person graduates, passes the bar, and gets a job, they can apply for more coverage.
What else is included in a million-dollar term life insurance policy?
Depending on your carrier, you could get some bells and whistles included in your life insurance coverage. Some of these perks include:
● Access to exclusive apps for fitness and health monitoring.
● A free trust and will or a discount on such services.
● A digital safe deposit box for sharing and managing your family’s necessary documents that they will need in the event of your death.
● Routine health services or discounts for such services.
What is the application process like for a million-dollar life insurance policy?
This, as we’ve mentioned many times before, depends on your carrier. In most cases, there is a formula that a carrier will follow.
If you’re unsure if $1,000,000 is an appropriate amount of coverage, many companies will offer an estimating tool or have you meet with a representative to talk it out. Most people can apply online for life insurance and get a result instantly. If more factors need to be considered or you need to go in for a health screening, the process will take longer.
How to be eligible for a million-dollar life insurance policy
If you’re set on buying $1,00,00 in life insurance coverage, you need to find out if you’re eligible. A combination of your yearly income and age will help a carrier determine if you actually qualify for the amount you want.
When it comes down to it, most people won’t have any problem qualifying for life insurance coverage as long as they are employed and making a steady income. If you want to know for sure, there are plenty of life insurance calculators out there that can be helpful.
Joshua Holt is a practicing private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Personal Capital keeping track of his money and is always looking for honest companies that provide insurance for a fair price without selling you products you don't need.