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Here’s when a $2 million life insurance policy might be the right choice


None of us want to think about the worst happening, but it’s important to plan for the future. And one of the best ways to financially plan for an unexpected future is to have life insurance. A policy provides a financial safety net that can be used by your loved ones to cover expenses, like a funeral, the mortgage, child care … the list goes on. This

So if you have financial dependents, you know you need life insurance. But how much do you need? Well the right amount of life insurance will depend on your income, expenses, family structure and a few other factors.


Which brings us to the life insurance policy you were interested in learning about: $2 million. It might seem like a huge amount of money because, well, it is. Still, consider how much of a financial gap you would leave in your loved ones’ lives if something should happen to you. There are years of expenses to consider, from your own funeral to your mortgage to college tuition up the road. It all adds up. And if you’re thinking “I can’t afford the monthly premiums on that big of a policy,” well, you may be surprised at how affordable a million dollar+ policy actually is.


Who needs life insurance coverage?

Let’s start here: For most people, life insurance coverage is an important part of a responsible financial plan for the future, especially if you’re at a stage of life where other people are depending on you to pay for their expenses. This often means a partner, spouse, and/or children. But it could also mean a sick or aging family member you help take care of. Think of it this way: If you weren’t around, would there be other people who would struggle financially in your absence? If yes, you probably need life insurance as part of your financial planning.


You might wonder what exactly life insurance covers. The answer is: Whatever you need it to. With term life insurance, you pay a monthly rate, known as a premium, for the duration of your term (often 10, 15, 20 or even 30 years). In exchange, if something happens to you before the end of that term, your beneficiaries will receive the full amount of that policy, which they can use to cover bills or other expenses. That includes the big stuff like funeral expenses, mortgage or rent, and education. It can also include the smaller-yet-important things like groceries or the electric bill.


You know when people talk about backup scenarios — safety schools, second-string quarterbacks, your plan B restaurant if the Plan A restaurant is too full — as insurance policies? Well, an insurance policy is like that, your back-up if Plan A doesn’t go as expected for your family.


Types of life insurance you can buy

You also have different types of life insurance options for a $2 million policy. There’s whole life insurance, also known as a permanent life insurance policy. With this type of life insurance product, you’re paying for coverage for literally the rest of your life. That coverage has a cash value, too, that acts as a financial planning tool and can be borrowed from to help pay for expenses like education or even to supplement retirement. Keep in mind that borrowing from the policy may reduce the death benefit paid to your loved ones, as well. All this is to say that permanent policies can be a bit complicated and are more expensive than term policies.


A term life insurance policy, true to its name, covers your family for a set period of time (the “term”). Typically you have a term policy in place that lasts until retirement, your mortgage is paid off and / or when your kids are financially independent. You’ll typically pay a guaranteed level premium, which is another way of saying that your monthly premium payment will stay the same for the duration of your policy. A term life insurance policy tends to be the most affordable way to get coverage, even for a $2 million policy. For example: a healthy 35-year-old woman can buy a 20-year, $2 million term life insurance policy for about $63 per month. A $2 million whole life insurance policy will usually be 5-10x more per month, which is cost prohibitive for many families.

How much life insurance do you need?

Prepare for some words you might not expect to hear from a life insurance agency: Yes, there is such a thing as too much life insurance. More isn’t always better when it comes to life insurance. What’s important is getting enough coverage to help financially protect your loved ones in case something happens to you, without getting so much that the premiums don’t make sense within your budget.


So is a $2 million term life insurance policy the right amount for you? It’s generally recommended that you get a policy for roughly 5 to 10 times what you earn a year (with some exceptions in either direction). That means a $2 million dollar policy could be a good fit for someone whose annual salary is $200,000 to $400,000. You might also want to consider that much coverage if you have extensive mortgage or other debt, or if you’re the primary breadwinner in your family.

Am I eligible for a $2 million life insurance policy?

Just as not everyone needs $2 million in coverage, not everyone qualifies for that much coverage, either.

Insurance companies consider a combination of factors including your age, your health, and your annual salary when determining how much coverage you might qualify for. Typically, the maximum coverage you can buy is between 10 to 30 times your annual income, though this may vary depending on your age and your health. In this case, that means a healthy 30-year-old would need to make at least $67,000 per year to qualify.


How much does a $2 million life insurance policy cost?

The cost of a $2 million dollar life insurance policy depends on a number of variables, like your age, your health and the term length of your coverage. It will also depend on what type of coverage you get, with a $2 million term life insurance policy costing much less than whole life insurance.


Of course, the younger and healthier you are, the more affordable your monthly insurance premiums will be. And locking in that rate over the course of, say, a 30-year policy, could add up to substantial savings over time. For example, a 30-year-old man in excellent health would pay $127.03 per month for a 30-year, $2 million policy. If that same man were just two years older, and his health went from “excellent” to “good” (it happens), he would pay $171.82 per month — a nearly $45 difference, which adds up to more than $16,000 over the course of the term.


How to buy a $2 million life insurance policy

Applying for life insurance online is simple. To start the process, you get a cost estimate for your coverage and then complete an online application. If you’re applying for a $2 million policy, you will usually be asked detailed health and lifestyle questions in the application process. All of this can be conveniently answered online in about 20 minutes. Most life insurance policies over $1 million will also require a medical examination. The exam itself is quick and simple—often taking place at your own home, or another place of your choosing. The end result? Peace of mind.


Something to keep in mind when shopping for life insurance is to choose a life insurance company you can trust and that has a long history of financial strength.


For more information about Life Insurance call JCT Insurance Agency at (626)354-2000 or email jctfinancialsvc@gmail.com

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