$10,000,000 in coverage through life insurance policies may seem like a lot. However, depending on your personal situation it may not be as much as you think. Life insurance’s primary focus is the death benefit which allows you to take care of your family well after you are gone. While passing down money and assets is a large reason for a life insurance policy that covers up to $10 Million, there are plenty of other reasons someone may need it.
But it’s not as simple as just signing up. You have to qualify after choosing one of the three different types of life insurance policy. Term-life, Whole Life, and GUL Policies are very different from one another and have different functions.
Here is what you need to know about $10 Million life insurance policies.
Who Needs It
So who does need it? There are several different reasons that someone would need coverage that covers that much. Someone who has or makes a lot of money is certainly one of those reasons. Usually, these people hand down their assets to one or several beneficiaries. Other reasons would be if you have a large debt or several debts that are not paid off. Long-term care, disability care, and others also qualify as reasons to get a life insurance policy worth $10,000,000.
Here is are the different situations in which someone can benefit from going with a plan that offers $10 Million in life insurance coverage.
Large Estate: If you are a family that has a large estate that is set to be passed down to future generations having a life insurance policy that covers that estate can be very important. It protects the beneficiaries from paying taxes on the estate as well as protects the estate from any debt collectors in the event that the beneficiary does have debt.
Large Debts IF you have one large debt or several debts that you do not want to be passed down to family members, a life insurance policy will protect beneficiaries from inheriting that debt as well as fend off debt collectors like the policy does for the estate as well. If you have a home mortgage say $300.000 or more, this would be a great example of having a life insurance policy that would prevent this mortgage from being passed down.
High Income: If you are the provider for the family it is said that you should have a life insurance policy 10 to 15 times what your yearly income is. That is because the death benefit is meant to pay those you currently take care of if you should pass. If you make anything close to a million a year or have total assets that amount to almost $10 Million then this would be an indicator that you should get a life insurance policy for that amount.
Charitable Donations: If you give back annually to charities, this can be accounted for in life insurance. What happens here is usually the underwriting will give proof of past donations as well as a pledge to a future donation. How much the charity will lose if you are gone is taken into account. Typically, the amount granted in the life insurance policy is 10 times the amount of the yearly donations.
Types of Life Insurance
There is not a lot of downsides when it comes to protecting yourself and others with a life insurance plan. There are however different types of life insurance that offer very different things from one another. We can think of term-life as the most affordable and whole life is on the opposite end of the spectrum. Guaranteed Universal Life acts as the middle-man between the two.
Let’s talk about each of them and what they can offer as a $10 Million policy.
Term-life often referred to as “pure life insurance” is a type of life insurance policy that covers you and your beneficiaries for a pre-determined amount of time. It is generally the most affordable option of the three because of the way the policy pays out. The death benefit is only paid out if the benefactor were to pass in that time that was determined in the setup. If the benefactor survives the policy, the death benefit is not paid out.
A whole life insurance policy is different than a term-life in the sense that the death benefit is always paid out. Another fundamental difference is that is a lot more costly than term-life and involves cash accrual. This is because the money essentially gets put into the market by one of your life insurance advisors. It is a lot riskier than GUL or term in the sense that you could end up with no benefit although very unlikely.
Guaranteed Universal Life insurance act as the middle-man between term life and whole life insurance. It is more expensive than term but less expensive than whole. The death benefit is guaranteed which is why it is such an attractive option. One of the distinguishing factors is that GUL has minimal if any cash accrual component which means that there is no risk in your investment. The reason that it is such an affordable option with a guaranteed death benefit is that it lacks all the frills and extras you may not need with whole life insurance.
How These Life Insurances Work With High Net Worths
If you have a high net-worth and your assets are more than $11.70 Million then you will want to think about the above-mentioned options carefully and your position. The inheritance you plan to give can lose quite a bit of its value if the right policies aren’t put in place.
Here is what each type of policy looks like when you have a high net worth.
If estate planning is not your primary concern and you are not passing off non-liquid assets then term life can be the best policy for you. It is the most affordable and straightforward policy. This may be ideal for those who want to provide income replacement for their beneficiaries, cover large debts such as a house mortgage or multiple college tuitions, and more. Often as we get closer to retirement, we self-insure ourselves by minimizing our debts. That’s why it’s great to cover ourselves for the period of time we need it with the option to renew or end at certain points. This benefit, however, is only paid out if the benefactor passes before the policy expires.
This is a common way for wealthier clients because they can afford the expensive premiums. Whole Life Insurance can be five to 15 times more expensive than other policies but always guarantees a payout. Whole Life can be paired well with estate planning because the policy can be transferred to an Irrevocable Life Insurance Trust. This would help protect the beneficiaries from inheriting the taxes that come with the estate as well as fend of debt-collectors that try to use the estate as a means to pay off the debt. This is because typically premiums are exempt from both.
Another reason why high net worth individuals like using Whole Life Insurance policies is because it acts as an investment vehicle for their money. It can end up providing more income replacement in the future for the beneficiaries.
Guaranteed Universal Life insurance will continue to act as the middle option between the above two. If you really need to have the death benefit secured and paid out as income replacement or financial stability for those set to receive it, GUL is great because you don’t have to pay the expensive premiums that you will for whole life. For those who already participate in the stocks, they may find that there is a tax benefit to whole life. But for those who are uninterested in the market and do not wish to take a risk, GUL is for them.
How To Qualify For A $10 Million Life Insurance Policy
If you feel that the information above resonates with you and your needs, next you will need to learn how to qualify. The process remains the same for multi-million policies regardless of the amount you are applying for. This means the only thing that changes is the actual amount asked for.
Here is the process you will be subjected to when applying and qualifying for a life insurance policy of $10 Million.
Find An Agent
The first thing that you should do is start working with an independent agent. This is because when you go to the direct insurance companies themselves their interests may be tied. They are going to want to offer you what they have in stock and instead it is best to shop around and know all your different options. Regardless of whether you are going with term-life, GUL, or Whole Life, they are going to have different riders and policies within each of them. Shopping around is the best way to know you have picked the right policy.
An agent will not be tied to the insurance policies and has the sole job of finding you the best one. However, you can’t just pick any agent in this process. Multi-billion contracts with life insurance require more knowledge like estate planning and trusts. If an agent immediately pulls out a spreadsheet and offering the best policies for the cheapest rates, big red flag. You’ll need someone experienced and seasoned that asks you the following questions.
You need to qualify and so here is what you should be asked.
- How much insurance coverage are you looking to buy?
- Is the amount that you need for personal or business reasons?
- Personal for income and/or mortgage?
- Business for Key Person and/or secure a loan?
- Do you have any current policies and for how much?
- How is your overall health?
- Do you smoke?
- Participate in risky activities?
- How are your current finances? Any significant debts?
This will help determine a very small base for the eventual medical exam you will likely have to take as well as the financial underwriting that takes place as well.
Financial Underwriting and Medical Exams
When you apply for life insurance you will be subjected to the underwriting process. This is done by the life insurance company to essentially validate that you are worth the premium you were originally quoted for. Through this, they will need to go through your application details, health, and general lifestyle to see if you are considered to be an at-risk person in any of these areas.
While each underwriting process is unique to each life insurance company, they generally fall closely in line with each other. These are the general steps taken.
- Medical Information Bureau – First checked out is your MIB to see your medical history and any past diagnosis.
- Application Quality – This is usually a quick 15-30 minute phone interview to verify the application information is correct.
- Medical Exam – A free exam conducted by the insurer where one of their nurses or doctors comes to your house or work at your convenience to check your current health.
- Check-In With Your Doctor – If concerns show in your medical exam you may need to have your doctor provide your medical history.
- Prescriptions – Check of past and current prescriptions.
- Motor Vehicle History – A check of any suspensions, fines, or any driving-related incidents the insurer would like to know about.
- Actuarial Tables – Your mortality table and your BMI table will be looked at to see what your probability is of dying at any given age.
- Credit – With all this information your insurer may try to give you a little credit boost to help with lowering the premiums before giving your final score
That’s the general basis for applying for a $10 million life insurance policy. Having said that to get through the qualifying part means that you need to have assets and/or an income that matches up. To find a life insurance company that is willing to give out such a big policy is not common except from some of the largest and most well-known insurers.
It’s important that you work with an agent that knows what they are doing. With this amount of money, you will want to likely tie your estate into it and take advantage of tax breaks. This requires some level of planning and choosing the right policy. Make sure that before you shop around for policies, you shop around for the right person to represent your best interests.