A half-million dollar’s worth of life insurance may seem sufficient for most people, but if you’re trying to replace your income for a spouse and children, you could easily fall short.
Think about that for a moment. If you have a spouse and two or three kids, do you really think a $500,000 life insurance policy is going to plug all the financial holes if you were to die unexpectedly?
If you’re unsure, welcome to the club. Most people don’t understand the size of the risk that needs to be mitigated if your income were to disappear. Here are a few things you might not have thought of:
- Normal living expenses for your family for at least five years
- That college fund that you’ve been faithfully investing in
- The mortgage balance on that perfect dream home that’s practically brand new
- All those debts you’ve accumulated since you’ve gotten married and had kids
- Your spouse’s retirement fund you’ve been contributing to
- The cost of a well-planned funeral and burial service
Regretfully, too many people believe that a decent chunk of money will make things right if you’re no longer there either providing a nice income or contributing to the family’s income. So then, the question is quite simple, is a $500,000 life insurance policy going to cut it for your surviving loved ones?
Since this article is about insurance rates, we’ll go ahead and provide the best term life insurance rates upfront and then talk more about whether $500,000 in coverage is the best way to go.
We’ll start with a $500,000 20-year policy for a healthy male and female non-smoker since 20-years is the most popular term policy being purchased lately.We’ll start with a $500,000 20-year policy for a healthy male and female non-smoker since 20-years is the most popular term policy being purchased lately.
|Applicant’s Age||Male Non-Smoker||Female Non-Smoker|
As you can see from the term life rate chart above, men are going to pay more premiums for life insurance than women because women tend to live longer and therefore the insurer will generally collect more premiums.
Table of Contents
What kinds of Term Life Insurance are Available?
Term Insurance is considered straight life insurance. This means that you purchase your life insurance for a period of time rather than your lifetime.
Although life insurance companies will vary among the terms they have available, most of them will always offer 10, 15, 20, 25, and 30-year terms. The length of the term you choose should depend on the period of time you want to have a guaranteed death benefit.
For example, if you are shopping for term insurance specifically to cover a $500,000 mortgage, the term you select should be at least the number of years that your mortgage will be outstanding. In most cases, that will be either 15, 20, or 30-years.
Are there any living benefits with a Term Life Insurance Policy?
As a matter of fact, yes there are living benefits that will either be part of the core coverage of your policy or can be added as a rider (optional benefit).
The Accelerated Death Benefit has become so popular over the last 10 years that most companies now make this rider part of the core coverage of the policy.
The Accelerated Death Benefit is considered a living benefit because it provides for the insurance company to advance a large portion of the death benefit to the insured if he or she is diagnosed with a critical, chronic, or terminal illness.
This benefit is a valuable safety valve that will help an insured deal with the costs of certain illnesses that will likely lead to premature death. Once the insured passes, the company will deduct the benefit paid to the insured from the death benefit that will be due to the beneficiary listed on the policy.
Another living benefit that is available is called the Return of Premium Rider. This rider turns your term life insurance policy into an investment product which is especially helpful for applicants who are not diligent about saving money.
If you purchase the Return of Premium Rider and are still alive when your policy expires, the insurance company will refund the entire premium you’ve paid over the years in a lump sum payment that is tax-free. Not a bad idea if you are like a lot of folks and not diligent about preparing for your financial future.
What happens at the end of the policy term?
The good news is that your term policy doesn’t usually die at the end of the term. Most companies will give you three options, two of which will keep your insurance in force.
- When your policy is close to expiring, the insurance company will offer you a renewal for an annual policy with the rates based on your age at expiration. Each year you can renew your policy at the rates based on your new age.
- Most companies have a “conversion privilege” that will allow you to convert all or a portion of your term insurance to permanent insurance like Universal Life or Whole Life insurance. The best part about the conversion option is that you will not have to go through underwriting again and most companies will apply a conversion credit to the premium of the new permanent policy you’re converting to.
- The third option is that you do nothing. Hopefully, you’ll have other insurance in force because buying a new policy is going to be much more expensive and if you’ve got health issues, you might not be able to qualify.
How does a $500,000 life insurance policy compare with lower Death Benefits?
Many insurance shoppers falsely assume that a $500,000 policy would be five times more than a $100,000 policy and that’s not the way it works. Insurance companies price their policies in bands which generally means the greater amount of coverage you purchase the lower the cost of life insurance per $1,000 in coverage.
Here’s an example of how a $500,000 20-year term life insurance policy compares with a $250,000 policy or a $100,000 policy for a healthy male non-smoker:Here’s an example of how a $500,000 20-year term life insurance policy compares with a $250,000 or a $100,000 for a healthy male non-smoker:
A review of this chart plainly indicates that a $500,000 policy is not 5 times more than a $100,000 policy which means the more death benefit you purchase the less your cost of insurance will be.
Which life insurance companies have the best Term Insurance Rates?
To find the best deal on term life insurance, simply fill out the instant quote form on the right side of this page to see a list of companies and the monthly rate for any amount of insurance you need and for any term period you prefer.
After you’ve found a few companies that have rates you believe are the best, take a minute and check out the company to make sure they’re highly-rated and financially stable (spoiler alert – we only represent highly-rated companies with the most competitive rates).
- Protective Life Insurance Company
- Assurity Life Insurance Company
- Lincoln Financial Group
- North American Life
- AIG – American General
Frequently asked Questions
How much life insurance should I buy?
If you want to replace your income for surviving loved ones, use an insurance needs calculator that will calculate your death benefit based on the financial needs of your surviving family members.
What are the most popular riders for Term insurance?
With insurance riders you can customize your policy to accommodate your individual needs. The most popular riders offered by most insurance companies are:
Accelerated Death Benefit
Accidental Death Benefit
Child’s Term Rider
Waiver of Premium
Return of Premium
Does a $500,000 policy cost much more than $100,000?
Most people think that a $500k life insurance policy would cost 5 times more than a $100k policy but it won’t. As the amount of the death benefit increases, the cost of insurance per $1,000 actually goes down.