How Much Does $1 Million in Life Insurance Cost?
The answer to “how much does $1 million in life insurance cost” is “it depends.”
Life insurance premiums are based on a number of factors, so if anyone tells you they can provide you with $1 million in life insurance without first gathering some key information about you, be very skeptical!
Let’s take a closer look at that $1 million in coverage number.
Premiums are Tied to Age
It’s a well-known fact: the younger you are, the better your rates. The most optimal time to get coverage is when you become of age in your province.
Let’s assume you are a 20-year-old male that does not smoke and has no health compilations. To keep costs down, you are going to start with a term to age 65 policy. Depending on the underwriter you choose, you can get $1 million in coverage for roughly $80/month. Not bad!
That means $1 million in life insurance until you are 65, covering all those years of buying a house, settling down and having children. With coverage already in place, you get 45 years of not having to worry about being covered if you change jobs (you are seldom covered by group insurance during the probationary period of a new job, and most group life insurance coverage is limited).
You can say a resounding “no” to non-portable, inflexible mortgage insurance, and you can rest easy knowing there is money to pay off the mortgage and help raise your children if anything happens to you – all for pennies on the dollar.
But remember, premiums are tied to age.
If you want the same $1 million in coverage to age 65, but you wait until you are 40 to buy the policy, your premiums are now $150/mo – and that is only if you are in good health.
It’s still a lot of peace of mind that takes you 25 more years, but the 40s are smack dab in the middle of paying off a mortgage, putting money into your RRSP and saving up for your kids’ education. This is why many families opt for less coverage or a shorter term if they are buying their first policy in their 40s.
Shortening the term or coverage lowers the premium… but you get what you pay for.
Premiums are Tied to Health
As anyone with a persistent heart condition or history of family illness will tell you, getting an affordable life insurance policy before no medical life insurance came along was an expensive hassle if you could get it all all.
With a pre-existing conditions – from asthma to diabetes to obesity – underwriters will charge you more to mitigate their risks. If your condition is severe, your only option may be a no medical policy… which is a great option if that’s all you can get but more expensive than a fully underwritten option.
Why? Well, look at it this way. You couldn’t insure your home if it was already on fire… its too late! To a life & health insurance underwriter your smoking, obesity or pre-existing medical conditions are like your health being in fire.
If the life insurance company can foresee a problem, they will either offer to insure you with a higher premium or decline the risk entirely.
Since poor health is more risky, no medical life insurance policies typically come with lower coverage amounts depending on your health history. Coverage options varie from 25K – 500K.
What About a Permanent Policy?
Whole life, universal life and term-100 policies are considered “permanent” because they protect you for life. The term does not expire. Whole and universal have the added bonus of an investment component, where part of your premiums are invested on your behalf and grow a very nice cash surrender value that you can withdraw, use to enhance your policy, or use as collateral on a loan.
Like all life insurance policies, permanent policies are also tied to health and age – the younger you purchase one, the less it will cost you.
A whole life policy for a 20-year-old non-smoking male for $1 million in coverage starts at $330/month. For a 40-year-old, the premiums start at over $760/month! It’s costly, which is why most people purchase these types of policies as part of their overall investment and financial strategy, or on their very young children to ensure lifelong insurability.
What if I Can’t Afford $1 Million in Coverage?
Not everyone has a $1 million dollar risk that should be covered with life insurance. A broker will do a full needs assessment that looks at your current assets and debts, along with your future goals.
A professional life insurance broker will not under or over insure you, and he or she will account for things like the growing equity in your home as you pay down your mortgage, existing coverage through work, pensions that can roll over to spouses upon death and more.
The old adage that you need $1 million in insurance is outdated… you might need more. You need an insurance strategy that is appropriate for you, be it $1 million to cover a lifetime of potential risks or just a few thousand for final expense and capital gains tax.
The real cost life insurance is what not having it does to your family, yourself and your peace of mind.
Instead of worrying about how your spouse and children will survive without your income, or how you will not fall into debt if you become disabled or ill, speak with a life insurance broker.