Jae Jun, a Seattle-area resident and company owner, was rattled by the hospitalization of a family member, prompting him to consider some of life’s great concerns.
At the time, he and his wife were five years into establishing an e-commerce company. The couple were also financially supporting his wife’s mother, who had relocated to the United States from Korea and had no income of her own.
Jun hadn’t considered a financial safety net other than their savings up until then. But when his companion recovered, the wheels began to turn.
“It really got me thinking: That could happen to anyone. And then what happens? “I started reading articles and talking to people, and I realized it was time to look into life insurance,” Jun recalls.
What’s his goal? To get a policy that would cover at least a year’s worth of personal and company expenses, as well as long-term care for his mother-in-law.
After calculating the calculations, he and his wife got two million-dollar life insurance policies for 30 years, one for each of them.
Crunching the numbers
“You don’t have to be a millionaire to get a million-dollar policy,” says John Carroll, senior vice president of LIMRA, a life insurance trade association.
Life insurance is intended to reduce the financial burden on your loved ones if you die. They can use the funds to cover your funeral and burial expenses, as well as daily living expenditures like groceries, child care, and rent. A life insurance payout can also assist your family in paying for college tuition or, in Jun’s case, caring for elderly parents.
When you consider all you pay for today and what you intend to pay for in the future, a million dollars in life insurance may not seem like much.
Carroll suggests that one way to calculate how much life insurance you need is to multiply your annual pay by ten and then purchase a policy that matches.
So, if you make $100,000 per year, you could be eligible for a $1 million life insurance coverage.
However, salary does not necessarily provide a whole picture. You can also utilize the DIME technique, which stands for Debt, Income, Mortgage, and Education, to determine whether you require a million-dollar insurance. Add up the following.
- Debt. You owe money, such as on school loans or credit cards.
- Income. Consider how many more years you’ll have financial dependents that rely on your income, and then multiply by your pay. For example, if you have toddlers, you’ll probably want enough life insurance to protect them until they reach college.
- Mortgage. The remaining balance on your mortgage, if any.
- Education. The finances required to pay your children’s tuition.
After you’ve totaled those expenses, deduct any savings, liquid assets, and the value of other life insurance policies. The final figure equals the face amount of life insurance you may require.
The million-dollar question (pun intended)
LIMRA estimates that 20% of term life insurance plans written in the United States in 2020 were worth at least $1 million.
It’s a popular and reasonably priced alternative.
The cost of a $1 million life insurance policy, like any other coverage amount, is determined by several criteria, including your age, gender, health, hobbies, occupation, and smoking status.
Let’s look at a 20-year term life insurance policy for non-smokers. A 30-year-old man in good health may expect to spend $350 per year for a million-dollar policy, according to Quotacy, an online life insurance agency. That’s slightly about $30 per month.
The average cost for a woman of the same age is significantly lower, at $276 per year, or $23/month.
Compare life insurance quotes from a few different companies to find the best deal.
Applying for a million-dollar life insurance policy
When you apply for a life insurance policy, the insurer wants to know: Do you require this level of coverage?
Insurers often need proof of income as part of the application process. Most firms will offer you coverage worth 10 to 30 times your annual pay.
If you want to buy a policy for $1 million or more, you may need to answer some additional questions about your finances.
“They want to make sure you can afford the premiums,” Carroll explains. “If a policy lapses, it doesn’t do anybody any good.”
