While we would never call you average, we thought you might want to know that, according to a recent Georgetown University study, the average American without a high school diploma earns nearly $1 million in their lifetime. As you would probably guess, those with additional education earn more. All of which is to say that, while a half-million dollars might sound like a lot — and it is — it’s a less imposing figure when considered over the course of your lifetime.
Which brings us to life insurance. When you’re buying life insurance, you need to be mindful of choosing a policy amount that covers more than end-of-life expenses (like burial and a funeral). You also need to consider decades of expenses, if you were to pass away suddenly. These expenses might include things like mortgage payments, childcare, health care costs, and of course, education needs that, like we said earlier, will pay off for your loved ones down the line.
But how much does $500,000 worth of coverage cost? And is a $500,000 life insurance policy enough coverage? As we often say, life insurance is one of those things where more is not necessarily better. That’s why we’ve put together this guide with tips for determining how much coverage is right for you. And if it turns out a $500,000 life insurance policy makes sense, we’ll also let you know how you can buy a policy and what else you might need to consider. Let’s get to it, shall we?
How much life insurance do I need?
Before getting into the price, it’s worth asking who actually needs a $500,000 policy. A common rule of thumb is to have coverage that’s 5 to 10 times your annual salary. That would suggest that a $500,000 policy could be right for someone who earns between $50,000 and $100,000 a year. The reason for the broad range is that your exact policy needs depend on the age and quantity of your dependents, as well as other factors, like what debts you have and your partner’s income.
What does a $500,000 life insurance policy cost?
Most things that are worth $500,000 cost $500,000, but that’s not the case with term life insurance. As for what does a $500,000 policy cost, there are two definitive answers to the question: The first is, “It depends, but it is easy to find out." The second: “a lot less than you probably think.”
The easiest way to get an idea of how much a $500k life insurance policy will cost is to use a free online quote tool. Per that quote tool, a healthy 35-year-old woman can buy a 20-year, $500,000 Term policy for around $20 per month.
The price you pay for life insurance is affected by several different factors, some of which you can’t control (like your age), and some of which you can. Three key factors are your age, your health, and the length of the term:
Age
The younger you are, the less you’ll pay for life insurance, which is a strong argument for getting it sooner, rather than later. The price of a policy goes up for every year that your age increases. For example, a man in excellent health, non-smoker, looking for a 20-year, $500,000 policy:
If he’s 35, he’ll pay around $23 a month
If he’s 45, he’ll pay approximately $56 a month.
Health
The bottom line is… the better your health, the less you pay. Take the example of a 35-year-old woman looking for a 20-year, $500,000 policy:
With excellent health, she pays around $20 a month.
With average health, she pays approximately $44 per month
Smoking also negatively impacts your life insurance rates. If that same woman smokes:
With good health, she pays around $78 a month
With average health, she pays approximately $105 a month
Term length
The longer you want coverage for, the more it costs. A 35-year man in excellent health, non-smoker, looking for $500,000 of coverage will pay:
About $16 a month for a 10-year term
Approximately $17 a month for a 15-year term
Around $23 a month for a 20-year term (a popular term length for our mid-thirties to early-forties customers)
Approximately $41 a month for a 30-year term
So does this mean you should get a 10-year policy instead of a 20-year policy and save yourself some cash? Almost certainly not. The length of your term should be based on the amount of time your dependents will need coverage. If you have young children and want to make sure they’re looked after financially if you die unexpectedly, that means you’ll need a longer term length than if you just have a few lingering debts that you expect to pay off in the next ten years.
Additionally, this is when the discussion of term versus whole life insurance comes into consideration. Permanent policies (like whole and universal life) offer coverage that lasts a lifetime as well as a cash value component that can grow over time. However, these policies can be cost prohibitive compared to term policies.
The cost of a $500,000 life insurance policy will vary substantially if you’re comparing between term life or whole life policies. For example, a 30-year-old woman in excellent health would pay about $30 per month for a 30-year, $500,000 term life insurance policy issued by our parent company MassMutual. A $500,000 whole life insurance policy for that same woman would be about $411 per month [Source: State Farm].
How do I buy a $500,000 policy?
As with any insurance coverage, the process of getting a $500,000 term life insurance policy begins with getting a quote and then filling out an application.
Just know that you will likely pay less for a policy that is medically underwritten, which means that the insurer is going to look at factors like your lifestyle, health, and medical history to determine eligibility and pricing. For many people, medically underwritten policies are more affordable because pricing is based on your health and other known factors so the insurer is taking on less risk from the lack of unknowns. For this type of policy, you will usually need to take a medical exam to finalize coverage, but there are some situations where you may qualify for a no medical exam buying experience. Once an application is submitted, you will know whether or not a medical exam is needed. [Please keep in mind that payment of a policy’s benefits may depend on the truthfulness of answers provided in the application.]
If you need to take a medical exam to finalize your rate and coverage, it takes about 20 minutes and can be scheduled at a time and place of your choosing. Often, you can get some amount of temporary coverage while you wait to complete your exam and get a final decision.
Is my life insurance coverage dependable?
If you’ve spent even a little time shopping for life insurance, you know that you have a lot of options for life insurance companies. One way to narrow down those options is by consulting ratings from third-party agencies. These agencies analyze an insurance company’s financial strength, and their ability to fulfill their contractual obligations to pay out a policy — and they do so independently, so you can trust their assessments.
Typically, you can find a life insurance company's ratings on its website; you can also check out life insurance reviews from customers.
Finding the right coverage for you
Even though $500,000 sounds like a lot of money, you may well find that you need that much. We find that the average amount of life insurance customers purchase is around 20-years and $600,000. The price of a policy will vary according to your individual circumstances, but it’s easy to find out that number, and one of the great things about life insurance is that you don’t get what you pay for – you get more by way of peace of mind.
For more information about Life Insurance call JCT Insurance Agency at (626)354-2000 or email jctfinancialsvc@gmail.com