You’ve worked hard and invested wisely. You’ve set aside a sizable nest egg for retirement. Now you’re wondering about life insurance. A life insurance policy can serve as a tax shelter for wealthy or high-income people who want to pass their assets onto their heirs. This way, your heirs get a nice lump sum and don’t have to worry about taxes. You’ve thought about it carefully and decided you need a $5 million dollar life insurance policy. How much will that cost?
The short answer is that it depends on the type of life insurance policy. $5-million life insurance can cost:
- $2,940 in annual premium for 20-year term life insurance
- $4,898 in annual premium for 30-year term life insurance
- $26,322 in annual premium (pay 30 years) for variable universal life insurance. You should only choose a VUL policy if you have good investing experience.
- $27,388 in annual premium (pay 30 years) for guaranteed universal life insurance, less than half the cost of whole life premiums
- $57,600 in annual premium (pay 30 years) for whole life insurance
And below are the details of these policies for $5-million coverage.
How Much does a $5 Million Term Life Insurance Policy Cost?
We decided to find out. Here are the six cheapest quotes we could find after we pulled quotes from many top companies.
These quotes are for a 30-year old male in good health, living in San Francisco. (Clicking on the links if you want to read our full review of these companies)
|Company||Death benefit||Annual Premium|
|Penn Mutual||$5 million||$2,940|
|Symetra Life||$5 million||$2,954|
|Principal National Life||$5 million||$2.970|
|AXA Equitable Life||$5 million||$2,975|
|Zurich American||$5 million||$2,990|
|Banner Life||$5 million||$2,996|
|Principal National||$5 million||$4,995|
|Banner Life||$5 million||$4,997|
|Penn Mutual||$5 million||$5,020|
|AG—American General||$5 million||$5,043|
|Pacific Life||$5 million||$5,059|
Term life insurance is generally very affordable. However, if you’re looking for a $5 million dollar policy for the purpose of passing an inheritance onto your children, you know that a 20 or even 30 year term expires at the end of the term. If you die after the term is over, your heirs won’t get anything. You could renew, but since you’ll be a good bit older, the premiums will be more expensive. If all you need is life insurance, term is a good bet.
How Much does a $5 Million Whole Life Insurance Policy Cost?
|Carrier||Death benefit||Number of Premium Years||Annual Premium||Guaranteed years|
|Penn Mutual||$5 million||30 years (or until 60 years old)||$57,600||91|
|Mass Mutual||$5 million||55 years (or until 85 years old)||$58,550||91|
|Mass Mutual||$5 million||35 years (or until 65 years old)||$68,200||91|
|Mass Mutual||$5 million||20 years (or until 50 years old)||$78,500||91|
In the Penn Mutual policy, our customer pays premiums for 30 years.
With Mass Mutual, there are a few choices. In the first one, the policyholder pays premiums until they are 85 years old. In the second policy, the policyholder pays premiums until they are 65, and in the third illustration, our customer pays premiums for 20 years.
Whole life insurance lasts your whole life, even if you only pay the premiums for twenty years. It also builds a cash value account, which is a type of savings account. You can draw from this account or take a loan out against it. However, if you take a loan, you’ll have to pay it back with interest. If you don’t pay it back, you might reduce the death benefit.
You will notice that all of the above are mutual insurance companies, which means policies might earn dividends, which can then be reinvested, used to pay premiums, or taken as cash.
Any way you look at it, whole life insurance is expensive. The cheapest $5 million whole life insurance policy is from Penn Mutual at $57,600 annual premium for 30 years. Totally, you will have to pay $1,728,000 in premium. Your beneficiaries is guaranteed to receive $5 million death benefit, tax free, when you pass away, which is a 2.9X return on investment, which can appear not too bad.
How Much does a $5 Million Guaranteed Universal Life Insurance Policy Cost?
These are quotes for our 30-year old male. He will pay premiums for 30 years only, from 30 to 60 years old. Heirs receive a guaranteed death benefit of $5 million dollars, as long as the insured passes away before age 100.
|Company||Guaranteed Death benefit||Annual premium||Gtd. Years|
|Penn Mutual||$5 million||$27,388||70|
|American National||$5 million||$29,252||70|
|Columbus Life||$5 million||$29,914||90|
Guaranteed universal life insurance policy will give our customer a guaranteed $5 million dollar death benefit, but unlike a whole life insurance policy, it doesn’t build a cash value account. You can draw from a cash value account or borrow against it. If you already have significant savings and don’t think you’ll need access to a cash value account, a guaranteed universal life insurance policy makes more sense as it still gives your heirs a tax-free death benefit and is significantly cheaper than a whole life policy.
For similar benefits, guaranteed universal life insurance policy costs less than half of whole life policy, just $27,400 annual premium. For 30 years, you will pay a total of $822,000 in premium. Your beneficiaries will receive a guaranteed death benefit of $5,000,000 whenever you pass away, which yield 6.1X return on the investment. This can be a great investment if you can afford it.
How Much does a $5 Million Variable Universal Insurance Policy Cost?
These are for our 30-year old customer, who will pay premiums for 30 years.
|Carrier||Initial Death benefit||Initial annual premium||Gtd. years|
|AG—American General||$5 million||$32,037||101|
Variable Universal Life insurance is a good option for a lot of people because it maximizes the cash value account. With this cash value account, you can withdraw from the policy and use it to supplement your retirement income.
For a $5 million death benefit, variable universal life insurance policy is even a greater option since it offers both guaranteed death benefit and a cash value account that you can withdraw if you need too. However, if you do withdraw from the cash value account and don’t pay back, death benefit will decrease accordingly. The VULone product from Prudential costs a bit cheaper than the guaranteed universal life insurance, $26,322 a year vs. $27,388.
With a Variable Universal Life policy, premiums are invested into a variety of investment accounts. You can choose where you want the premiums invested: stocks, bonds, mutual funds, money market accounts, etc. The interest earned on these investments builds the cash value of the account, usually at a faster rate than a whole life policy would.
Variable Universal life insurance combines a life insurance policy with an investment vehicle. It’s not without its risks, given the investments can suffer a decline. If the investments perform well, both the cash value and the death benefit can grow.
If you’re just considering the premiums you’ll need to pay, term insurance is by far the cheapest option. On the other hand, term insurance comes with a deadline, and you won’t be able to leave any money to your heirs when you pass away. Whole life insurance lasts your entire life, and leaves money to your heirs, but is prohibitively expensive. A VUL or GUL policy will cover you for life and you’ll be able to leave some money behind.