As morbid as it sounds, if something happened to you and your family needed to face a future without you, your life insurance policy can be your financial protection. In most cases, your life insurance coverage may need to be at least five to ten times your annual salary. This is to help make sure your family can survive the next five to ten years without you.
And if you don’t make that much money, but you have debt or other financial obligations, you might actually need a million-euro policy (or more).
However, with life insurance, “more is better” is not always the right mindset. A million euro policy can be expensive, and you might not know if you even need it.
It’s all about the right balance: too little insurance coverage can leave your family under insured, but too much coverage might make you allocate too much of your budget to your insurance.
A million euro might seem extravagant, so you might be wondering: Do you need a million-euro life insurance policy?
If you want to help ensure that your family is covered after you die, it might be the best choice. So in this article, I’m going to unpack this a bit more so you can determine if this much coverage is actually needed or not.
What is a Million-Euro Life Insurance Policy?
A €1 million life insurance policy works just like one of lesser value. Its a contract with a face value of €1 million made in exchange with your insurer.
You pay your regular fees, typically monthly. In exchange, your insurer agrees to provide payment to your beneficiaries if you pass away. This monetary amount can be tax-free and comes as a lump sum.
If you die while the contract is still in effect, your beneficiary (or beneficiaries) can receive €1 million. When purchasing a large policy like this one, it’s essential to talk with your tax advisor or a financial expert to understand all the financial details.
The Cost of a Million Euro Life Insurance Policy
Like any other form of insurance, a life insurance policy considers several variables. The first of these is the type.
There are two main types of life insurance you can choose:
- Term – This can be the most affordable insurance because it covers death benefits only. This can vary from 5 years to 50 years. Premiums for this type are fixed, and some policies are renewable. Most insurers will allow you to convert to a more permanent form of insurance if you want to, such as whole life insurance providing this is included from the start. With term policies you have two option Decreasing benefits or level benefits.
- Permanent/Whole of Life. These can be more expensive than the term life insurance because they are lifetime coverage. Some whole of life policies come with a cash back option.
Other factors go into creating your unique quote. Here are some of those factors and why they matter when calculating life insurance costs.
Age and Health
Older adults tend to pay more for new life insurance because, unfortunately, they are likely to die sooner. Premiums are based on the likelihood of you paying your policy’s claim so younger adults get lower rates because they will (likely) be paying it for a longer period of time.
For the same reason, your overall health is considered. Life insurance applicants with pre-existing conditions and other conditions that could shorten their lifespan will likely pay more, since they have a greater likelihood of making a claim.
For more expensive policies, such as a million-euro one, your age is even more important. Say you’re 35 years old, and you want to purchase a 40-year policy. The insurer may not offer the same term to someone 60 years old because they’re more likely to pass away before the term is over.
Lifestyle and Occupation
Your lifestyle also plays a big part in your policy, too, regardless of whether it’s for €1 million or less. Underwriters will determine the level of risk that your life insurance policy presents.
In applying for life insurance, underwriters will look at how old you are, as well as your health, lifestyle, and occupation.
Those in more dangerous or physically demanding professions (diving, particular construction work, fishermen, etc.) might pay more. This is because the odds of dying on the job are greater.
Underwriters consider your hobbies as well. If your hobbies include chess and computer coding, you probably don’t pose much of a threat. However, if your hobbies include skydiving, your underwriter might consider those and raise your premiums,deny coverage, or offer coverage with an exclusion.
Smoking also increases your premiums. However if you have quit for more than 12 months including all nicotine replacement products you can get non smoking rates.
Family History
Family medical history also affects your rates. If your immediate family, such as a parent or sibling, has suffered a serious medical condition, your rates may be higher. This is simply because there’s a greater chance that you’ll fall victim to the same medical condition.
To clarify, the insurance company won’t care if your mom fell down the stairs when you were eight and broke her foot. It will care if she has a history of diabetes or ovarian cancer. It won’t care if your brother got into a fight with a lawnmower and lost his index finger, but it’ll care if he’s prone to seizures or has epilepsy.
Underwriters calculate how long they expect you to live by analyzing your lifestyle and medical history to determine the risk in offering you life insurance.
It’s important to always be honest when filling out your life insurance application. If it comes out you didn’t disclose medical conditions or information about your profession, it might be considered a breach of contract, and your beneficiaries may not receive their payout. Be honest, so your loved ones get the benefits you want them to receive.
So Do You Need a Million Euro Life Insurance Policy?
To answer the original question, you’ll need to look at every aspect of your finances and lifestyle. Your exact coverage should depend on several factors that I’ve already listed, plus things such as:
- Dependents
- Dependents’ education and other plans
- Financial obligations such as debts
- End-of-life and funeral expenses
- Family’s day-to-day living expenses
- Future goals and aspirations such as home ownership
After considering everything, you may realize you don’t need a million-euro life insurance policy. If you don’t earn six figures, have no children, and have no financial obligations, a €500,000 policy might be the right amount for you without emptying your pockets each month.
But certain markers can identify if you need up to a million-euro life insurance policy. These include things such as:
- If you earn a high salary, at least €70-100k+
- If you live an expensive lifestyle, you’d like to maintain for your family
- If you have a desire to leave a large inheritance for your children and family
- If you face an estate tax and need high liquidity
- If you own or are a partner in a small business
If you have these markers, you might want to consider a life insurance policy for €1 million or more.
Overall, I’d say you need to consider every facet of your lifestyle to determine if you require a million-euro life insurance policy.
In addition, make sure to consider the following:
- Occupation
- Hobbies
- Health
- Life Plans
When you consider these factors, you’ll be well on your way to figuring out the best life insurance policy for you.
LowCostLifeCover.ie is an online life insurance broker that offers all types of life insurance. We are one of the first brokers to operate solely online. Our primary focus is to provide a high level of quality at an affordable price.You can do the application entirely online and have a quote within minutes.
Summary
Purchasing life insurance does make you consider your mortality, but it’s always better to plan for the worst than have no plan at all. By considering what would happen to your family and loved ones, if you died today, you also determine your worth (which is usually a lot more than you think it is). From there, you can start covering what needs to be covered if you die.
So, do you need a million-euro life insurance policy?
That’s up for you to decide. If that policy is a million-euro life insurance policy, that’s great. If it’s €500k, that’s also great. The coverage amount matters only to where it needs to take care of your family when you’re gone. If it does that, you’ve done your job.
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