Is $1M Life Insurance Enough?

Is a $1M life insurance too much? Is it sufficient? There are a variety of factors to answer those questions when an individual is considering a particular life insurance policy.

First, one would have to identify and determine the need for life insurance. Is it for asset protection, replacement of income, gifting to family, to cover death expenses (etc.)? There are three approaches to determine the life insurance need: Human Life Value, Needs-Based, Capitalized Earnings. All three approaches take into account various conditions to determine the amount need. The Human Life Value is my preferred approach for its simplicity and as it focuses on replacement value during the duration of the unexpected loss of income. However, any insurance agent needs to consider the particular needs and desires of the individual creating the policy.

Once the determined amount from the particular needs approach has been made, one must then understand the structure of the policy desired. Is it term or permanent? What is the length of premiums desired? Is cash value accumulation a factor? Does the policy owner want to benefit from the policy while living? Any additional protection needed from disability, long-term care, or additional family members needing insurance at a discounted rate? All those questions should be considered to help you determine if one would want a term, whole life, universal, variable, riders, limited-pay policy.

After all is said and done, the allotted premiums required to fund the policy could be the ultimate factor. Is the policy affordable and within the tolerance of the individual’s cash flow available? Multiple factors affect the associated premiums and are determined through the underwriting process. Age, health history, and lifestyle risks of the individual insured are some examples that are factored in the underwriting.

There is a reason why the life insurance industry is so large and a plethora of companies and agents exist. It’s because there are also many ways to “skin the cat” of life insurance needs for individuals. So, is $1M life insurance a lot? The answer…it depends!