Wow! A $750,000 life insurance policy.
This may seem like a lot of life insurance for most folks, but when we really drill down into how much you need, this may not even be enough.
If you’ve watched any TV or go on social media, you’ve likely seen life insurance ads where the price seems just too good to be true and figured maybe it’s a scam.
The fact of the matter is term life insurance is cheaper than it’s ever been before, especially if you’re young, a non-smoker, and healthy. Since term insurance is temporary and most policyholders outlive their policy, insurance carriers pay far fewer claims for term than do for permanent insurance like Indexed Universal Life or Whole Life.
But, you may be thinking, why would middle America need a $750,000 life insurance policy? Keep reading and you’ll learn why you might need it and how little it can actually cost.
$750,000 is a big number, Why would you buy this much Life Insurance?
To help you understand why $750,000 in life insurance is not an unusual purchase, let’s do a case study on a hypothetical 30-year old married male with two children who wants to have enough life insurance to replace his income if he should die unexpectedly.
Jason is a 30-year old married male with two children ages 4 and 6 years old. Jason’s wife, Emily, is currently a stay-at-home Mom working on a computer science degree online and does not currently have a steady income. Jason wants enough life insurance that will pay his family’s monthly living expenses for 5 years, pay off the $285,000 mortgage, pay for college for the kids, and provide a lump-sum investment for Emily’s retirement needs.
Jason decided ahead of time to call an old college buddy who’s an independent insurance broker rather than take the chance of making mistakes on such an important purchase. His college buddy, Eric, recommended that they go through a life insurance needs analysis to determine the amount of life insurance it would take to cover every issue that Jason is concerned about.
Using a free online insurance calculator, Jason and Eric were able to determine the financial needs of Jason’s family if he were to die unexpectedly. Here’s what that analysis looked like:Using a free online insurance calculator, Jason and Eric were able to determine the financial needs of Jason’s family if he were to die unexpectedly. Here’s what that analysis looked like:
In this section, Jason entered his final expense (funeral & burial) costs which are estimated to be around $15k, his outstanding credit card debt that totaled $4,500 and his mortgage balance of $285,000. He also recorded the age of his children and what type of college he could afford to pay for.
In this section, Jason entered what amount of income his family would need per year for 10 years but exclude the mortgage payment. He figured $3,000 a month would suffice.
Next, Jason entered that he has $4,500 in savings and about $56,000 in his 401(k). He also entered that he has a small Universal Life policy with a death benefit of $100,000.
The third section is where Jason would have plugged in the information about Emily’s income but it was left blank since Emily is a stay-at-home Mom in school for about 3 or 4 more years.
In this section, Jason estimates the rate of inflation and after-tax invest yield he can expect on his 401(k).
Now, after the click of the agent’s mouse, Jason’s life insurance needs are revealed.
And guess what? Yep, $750,000 ought to do it!
A Moment of Doubt
When Jason saw the number he needed to meet, he naturally had questions for his agent Eric but before he could get his first sentence out of his mouth, Eric clicked on the “See Calculations” link (not Eric’s first rodeo) and a calculations report popped on the screen in an instant. This calculations report provided enough information for Jason to ask just one question; how much is a $750,000 life insurance policy?
How much does it cost for a $750,000 Life Insurance Policy?
Although Jason wasn’t shocked when he saw the amount of life insurance it would take to financially protect his surviving loved ones, he was somewhat concerned if he could afford it.
As we mentioned at the beginning of this delightful article, term life insurance is an outright bargain, especially if you are like Jason who is young, in very good health, and doesn’t use tobacco products.Here’s what we found for a $750,000 life insurance policy with 10, 20, or 30-year term.
|Age of Applicant
When reviewing the rate chart for the various term periods, it’s quite apparent that the longer the policy is guaranteed for, the more it costs in terms of premium dollars. The cost also vary by face amount.
If you’re thinking about what happens when your term insurance policy is about to expire, you do have options:
- Most insurance companies will allow you to renew your term policy on an annual basis with a new premium each year based on your attained age.
- Many carriers include a term conversion option in their term policy which will allow you to convert some or all of your term insurance into a permanent insurance policy like whole life or universal life. Although your premium will be higher because of the lifetime coverage and the attained age you made the conversion, you’ll likely need less insurance coverage and your rate class will be the same as the rate class used when you purchased the term policy.
- You can let your policy expire and purchase a universal life policy with a lower face amount but lifetime coverage. And, your new UL policy will earn cash value that you could withdraw in your retirement years.
You can get a better idea of policy cost by completing the quoter on the side of this page.
Frequently asked Questions
Do I have to have a medical exam for a $750k policy?
Actually, you do not have to have a medical exam. We represent several insurance carriers that will write policies up to a $1 million without requiring a medical exam or blood/urine tests.
Is a life insurance needs analysis free?
Insurance professionals will typically provide this service for free because it benefits the agent and the prospective client. Most people don’t know how to determine their life insurance needs and this is the best method if your intention is to replace your income when you die.
Do companies offer riders with larger policies?
Absolutely they do. Many consumers want to purchase more than just a death benefit. In fact, living benefits like the accelerated death benefit have gotten so popular that most companies include the benefit as part of the policy’s core coverage.