Should I Have a $1 Million Life Insurance Policy?

We break down how a $1 million policy could help set up the people who matter most

1 Million Life Insurance

At first glance, a $1 million life insurance policy might sound like a lot of life insurance—perhaps too much life insurance. 

But when you get down to calculating your life insurance needs, you might find that it’s exactly enough coverage to help give your loved ones some financial protection if you were to pass away.

We’ll go through the basics of Lemonade’s life insurance offering (and beyond), breaking down how a $1 million policy could help set up the people who matter most.

Here’s what we’ll be covering:

Do I need a $1 million life insurance policy?
How much does a $1 million life insurance policy cost?
What is life insurance? 
Term vs. whole life insurance

Do I need a $1 million life insurance policy? 

$1 million is a sum so large that, to many of us, it feels like an amount reserved for game shows and heist movies. But once you do the math (don’t worry, it’s pretty simple), $1 million feels a whole lot smaller. 

Losing a loved one is devastating, and the main purpose of life insurance is to help offset some of the financial hardship that comes with it. In order to find the right death benefit amount, you’ll have to crunch the numbers to figure out how much money could help your loved ones recover financially in the event of your death. 

The most significant financial contribution you probably make to your family is through your salary. One rule of thumb when determining life insurance coverage is to multiply your annual salary by 10 to reach your desired coverage amount. So, if you make $60,000 a year, a $600,000 policy could keep your family financially afloat with living expenses for the near future. 

Stay-at-home parents should definitely not count themselves out when it comes to life insurance—even if they technically don’t take home a salary. Childcare, cooking, cleaning, and managing a household are equivalent to around $160,000 in annual income

But life insurance doesn’t just have to be income replacement. Now, think about other financial obligations that lie ahead, or that you might leave behind. 

For example, if you have kids, you might want to cover their college tuition with your life insurance payout. That can easily add a couple hundred thousand dollars to the value of your policy. 

You might also want to cover your outstanding debts, like mortgage payments, private student loans, and credit card debt. According to CNBC, the average American household has an average of around $100,000 of debt. By factoring in your remaining debt into your life insurance policy, your family can comfortably pay it off if you were no longer around. 

$1 million doesn’t seem like such a huge sum anymore, now does it?

cost of a million dollar life insurance policy
She could be Harvard class of 2042

How much does a $1 million life insurance policy cost? 

There are a number of factors that determine the cost of Lemonade’s life insurance offering, including: 

  • The type of policy
  • The amount of coverage
  • Age
  • Location 
  • Medical history
  • Lifestyle
  • Term length (for term policies) 

The above factors will also determine if you might get denied for a policy in the first place. Older, less healthy applicants are more likely to be denied coverage, or be quoted significantly higher premiums than younger people in good health.  

Besides your personal stats, it bears repeating that the amount of coverage you choose will play a significant role in how much you pay on premiums. If approved for coverage, a $1 million policy will cost more than a $50,000 policy. That’s just common sense. 

You might be inclined to save as much money as possible on life insurance, but paying more on your premiums could be worth it to get the coverage your loved ones really need. Peace of mind is priceless. 

But hey, before you make any big financial decisions, be sure to chat with an insurance agent or a financially savvy person to make sure you’re making the right decision. Afterwards, Lemonade’s life insurance offering will be waiting for you.

I’m only 25. Why would I need Lemonade’s life insurance offering?

When you’re young, it’s easy to feel invincible. But life is full of unexpected twists and turns, as well as accidents we can never predict. So even if you’re in the prime of life, it can be a good idea to secure a life insurance policy that can help protect your loved ones if you’re no longer around.

Locking in a policy when you’re young, and in good health, will also help you land more affordable premium rates—and those rates are locked in for the entirety of your policy’s term. (FYI: Lemonade’s term life insurance pricing is very competitive for young people with rates starting as low as $8/month.)

What is life insurance? 

Life insurance helps keep the people you care about financially protected in the event that you are no longer around.

If you’re approved for life insurance coverage, you pay a premium, and in exchange, the insurance company offers the people in your life some financial protection if you were to pass away. If a life insurance claim is approved, your loved ones, aka beneficiaries, can receive a lump sum payment from the insurer, also called a ‘death benefit’, which they can use to cover expenses big and small, such as short-term (final expenses) or long-term (college tuition for your kids). 

The death benefit can be spent without limitations. 

Term vs. whole life insurance

There are many different types of life insurance products on the market today, but the most common coverage types you’re likely to come across are term life insurance and whole life insurance.

We go into much greater depth on the differences between term and whole life insurance here, but we know your time is valuable, so we’ll give the TL;DR version. 

Term life insurance covers you for a predetermined period of time, or term. This is the type of policy available with Lemonade’s life insurance offering.

Let’s say you apply and are approved for a $1 million, 20-year term life insurance policy. If you were to pass away within those 20 years, your beneficiaries would receive the $1 million death benefit from the life insurance company. But in the likely event that you’re still alive after 20 years (woop woop!), your coverage expires, there’s no payout, and you’re welcome to apply for a new policy. 

Term life premiums with Lemonade’s life insurance offering tend to be relatively low, because in most cases, policyholders are still alive at the end of their coverage. Because the insurance company isn’t obligated to payout most of the time on term life policies, they’re able to transfer savings onto policyholders. 

With Lemonade’s term life insurance offering, you can apply for a coverage amount ranging from $100,000 up to an unlimited maximum benefit, for terms of 10, 15, 20, 25, 30, 35, and 40 years. 

Whole life insurance is a type of permanent life insurance, which basically guarantees a death benefit payout when the policyholder dies—whether that’s in 5 or 50 years. Over time, a whole life policy also builds cash value, which the policyholder can borrow or use to cover premium payments.  

According to Investopedia, premiums for whole life insurance can be up to 10 or 15 times higher than those for term life insurance. Why’s that? Well, with whole life insurance, a death benefit payout is basically guaranteed (assuming the claim is approved, of course), because the policy lasts as long as the policyholder lives. 

Before we go… 

Finding the right amount of life insurance coverage is an entirely personal decision. Many people find themselves considering life insurance when they get married, have kids, or make big financial moves like buying a house or becoming business owners. We know that this isn’t a decision to take lightly. 

Looking to further expand your life insurance knowledge? Read our Ultimate Guide to Life Insurance, and get a better sense if life insurance is worth it for you. 

While you’re at it, go ahead and apply for term life coverage offered by Lemonade.

A few quick words, because we <3 our lawyers: This post is general in nature, and any statement in it doesn’t alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade, which differ according to your state of residence. You’re encouraged to discuss your specific circumstances with your own professional advisors. The purpose of this post is merely to provide you with info and insights you can use to make such discussions more productive! Naturally, all comments by, or references to, third parties represent their own views, and Lemonade assumes no responsibility for them. Coverage may not be available in all states.

Eliana Sagarin

Eliana Sagarin is an Editorial Strategist at Lemonade.


Please note: Lemonade articles and other editorial content are meant for educational purposes only, and should not be relied upon instead of professional legal, insurance or financial advice. The content of these educational articles does not alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade, which differ according to your state of residence. While we regularly review previously published content to ensure it is accurate and up-to-date, there may be instances in which legal conditions or policy details have changed since publication. Any hypothetical examples used in Lemonade editorial content are purely expositional. Hypothetical examples do not alter or bind Lemonade to any application of your insurance policy to the particular facts and circumstances of any actual claim.