When I hear people asking the question, ”Is a million dollar life insurance policy enough?” the first thing which comes to my mind is the lack of knowledge and eagerness to understand the right amount of coverage needed. Also, please note we are discussing term life insurance policy. Life insurance needs depends on a lot factors which can be listed as follows:
Assess Your Needs To Buy A Million Dollar Life
- Your current financial situation. It includes a deep analysis of assets and income.
- What are your families and your basic necessities?
- What is your family’s financial comfort zone?
- Do you have dependent children? Are you paying for their college fees?
- Do you have a mortgage? How secured are you to pay it off?
After reading the questions above, you mind must be flooded with a lot questions. Choosing the type of life insurance policy is far easier than determining how much life insurance is enough. Each individual will have a different answer to all the questions mentioned above hence the approach to think about buying a 1 million, 2 million or even 5 million worth of coverage is not the right way of analyzing your life insurance requirements. Just to make things a bit more difficult for the average Joe, let us also take into account the following factors:
- What is your partners/spouse annual income?
- How many years of service left for him/her to turn 65?
- What is the value of your current investment portfolio? (This may include cash, stocks, securities and savings bonds?
- Current value of company savings plan? (401k, 403b)
- Do you currently have any cash value life insurance policy?
- Expenses of health insurance premiums, monthly bills?
- Your current debt balance including mortgage and credit card payments?
You might think, that why have I listed all these questions but each and every question plays a major role in deciding if a 1 million dollar life insurance policy is the right amount of coverage you many require. Till now we have not taken into account the expenses which may arise due to change in financial situation and special events like wedding, new residence, long term care cost, and cost of final expense . So, now you have a vague idea about how you should calculate your life insurance needs but our question still remains unanswered. Whether 1 million dollars life insurance policy is enough?
Judge Your Family Expenses Before Taking Out
A Million Dollar Life Insurance Policy
I still want to present some statistical data in front of you before answering because whether 1 million dollars’ worth of coverage is enough for you or not is directly related to your budget and lifestyle: Read below:
- Annual college budget for 2012 – 2013 for in state college is around $22,200. If the child is going to a private college then it will cost you around $43,000 annually.
- The average cost of a new home in the united states is hovering around $250,000
- Child care costs are rising each year and range anywhere between $4,000 to $12,000
- Average credit card debit is around $15,000 in 2013
- Average cost of wedding has increased upto $30,000 in 2013
The reason behind listing all the data above is to get a glimpse into your financial situation. All the expenses mentioned above may not apply to your personal situation as the need of life insurance changes at every stage in life. Based on all the above factors, you will have to judge your requirement of a million dollar life insurance policy.
Do You Really Need A 1 Million Dollar Life Insurance Policy?
It is my personal opinion that buying life insurance is a waste of money except when you are young, living with very low net worth and have kids who are just toddlers. Think and answer this question to yourself. Why do you need a 1 million dollar life insurance policy? If it is to provide financial security to your family then just by term insurance. Never, think life insurance as an investment tool. If you need insurance then just buy insurance. If you are looking to invest your money to grow then think about investment. It can’t be simpler than this.
If you are thinking about buying a million dollar life insurance policy and have no dependents and no partner (spouse) then don’t even think of buying life insurance. Forget about, a million dollars.
The higher is your net worth; lesser life insurance is what you need. What I mean here is, even before you think about life insurance, reassess your assets and check what’s your net worth which eventually will determine your life insurance coverage. Factor your family requirements as well as explained above. Keep in mind the number of family members and dependents. As an example, consider the example below:
Why Million Dollar Life Insurance Policy Might Not Be Enough?
Suppose there are 3 members in your family excluding you. Your spouse and two children. Then depending on the current and future inflation and the rising cost of monthly living expenses including other expenses mentioned above, you should multiply the number of family years with a number which you feel would bring in financial security in your family. The result is the amount which is the sum of your annual income multiplied by those many years. So let’s say you consider eight to be the right figure. So you need to leave behind 8 multiplied by 3 = 24 years worth of salary for your family should you pass away. The idea here is to calculate financial security for each family member.
In 2013, median household income in the US is hovering around $52,000 annually. So, in a hypothetical scenario you will need
$52,000 * 24 = $1.24 million dollars as life insurance coverage. This figure is just an example it can vary depending on your annual income which may be higher or lower than $52,000
What Is The Cost Of Buying 1 Million Dollar Life Insurance
Life insurance rates are governed by your age and health condition. So it will vary for each individual. Once these aspects are taken care off, comes the term of your policy. A 20 year term life insurance would be cheaper than a 10 year term. If you are young in your 20’s, a non-smoker then you can get a million dollar life insurance at cheap rates which could start from $30 to $40 per month. No two individuals have same age, health condition hence the rates will vary. If you are 45 years old then you might pay around $100 dollars a month.
So, as we see the question whether a million dollars would be enough to suffice your life insurance requirement depends on many factors. Use our exclusive multi-quote life insurance comparison engine above. Just punch in your zip quote and get a free life insurance quote.