How much does a $500,000 Life Insurance Cost?

A $500,000 life insurance policy may provide enough coverage to take care of all of your financial obligations, such as mortgage payments and children’s education costs, if you pass away prematurely. While the cost of life insurance depends on the coverage amount, don’t simply assume a $500,000 policy will be too expensive.

Life insurance is often more affordable than many people think, especially if you are in good health. Keep reading to find out how much you will pay for a $500,000 life insurance plan and if it’s the right amount of coverage amount for your family. 

How much does $500,000 of term life insurance cost?

How much you will pay for a $500,000 term life insurance depends on several factors, such as your: 

• Age
• The length of the policy term
• Gender
• Personal medical history
• Lifestyle choices, and more

We gathered quotes from different providers for a term life plan with a death benefit of $500,000 and found: 

1. A $500,000 term life insurance is more affordable than many people think
2. The earlier you buy coverage, the lower your premium rates will be
3. Men pay more for coverage than women, and the difference in their premiums increases with age
4. Smokers pay considerably more for a $500,000 term life policy than non-smokers

Purchasing Life Insurance Earlier in Life Means More Affordable Premiums

Age is one of the main rating factors for life insurance. On average, life insurance premiums increase by 8% to 10% every year you age. Our analysis revealed buying a $500,000 term life plan in your late 50s or early 60s means your premiums will be significantly higher than if you had bought the policy in your 30s or early 40s. 

Women pay less for life insurance than men

Gender is another key rating factor for life insurance. Since females live longer than males, on average, they receive better rates. While females pay lower premiums, regardless of age, the price difference between female and male rates varies with age. Generally, the price difference is greater at ages 50 and 60 than at other ages. 

Pre-existing conditions lead to higher premiums, as does smoking

In most cases, you can get life insurance with a pre-existing condition, though you will have to pay more coverage than someone who is in good health. How much more? That depends on the type and severity of the illness. 

Tobacco users, on average, pay two to three times higher premiums than non-smokers. The good news is that after quitting for 12 months, you can qualify for Standard rates.  

*Sample quotes based on $500,000 in life insurance for 10 years for a healthy male

How much does $500,000 of whole life insurance cost?

Whole life insurance is the most common type of permanent life insurance, meaning it provides coverage that lasts until you pass. Of course, you will need to pay the premiums as per the schedule to keep the policy active. 

Alongside lifetime coverage, whole life insurance plans include a savings element, called cash value. When you pay the premiums, a portion of each payment is allocated to this built-in savings account. Your policy’s cash value grows tax-deferred, meaning investment gains are taxed only when you access them. Once your cash value has grown to a certain amount, you can withdraw it partially or fully or take a loan against it. 

Whole life insurance premiums can be much higher than those of term life insurance. That’s because these policies provide coverage that doesn’t expire and build cash value, which is an asset in itself. 

Like term life insurance, whole life insurance premiums are based on your age, health, smoking status, and the coverage amount. 

*Sample quotes based on $500,000 in whole life insurance for a healthy female

How much life insurance do I need? 

You should have enough life insurance to allow your surviving spouse or partner to take care of all your financial obligations after you’re gone. To figure out your life insurance needs, start by looking at your financial obligations and assets. 

Generally speaking, your policy’s death benefit should be large enough to fill the gap between your long-term financial obligations (think mortgage payments, college tuition fees, etc.) and your current savings. There are different formulas that can help you quickly determine how much coverage will be enough, including multiplying your salary by 10 and the DIME method. 

Multiply your income by 10

Most financial experts believe that the death benefit should be at least 10 times your annual salary. However, this method doesn’t give a complete financial picture of your needs since it ignores the amount of debt you have and your current savings. 

The DIME method

This method involves adding up the following amounts: 

Debt: How much debt would you leave behind? 

Income: For how many years after your death would your family need income replacement? Now multiply your annual income by this number. 

Mortgage: Add the mortgage balance to the total.

Education: Estimate how much money will be needed to send your kids to college

The DIME method is more comprehensive, but it doesn’t consider your current savings, nor does it take into account any existing life insurance policy that you already have. 

Want a more accurate estimate of your life insurance requirements? If so, consider using an online life insurance calculator or speaking with an experienced life insurance expert. 

Why do I need $500,000 life insurance? 

A $500,000 life insurance policy may seem too much, but once you factor in your long-term financial obligations, you may find that you need that much coverage. 

Many people looking for a $500,000 death benefit need coverage to provide income replacement for their surviving spouse or cover their debts. 

While the life insurance needs of each family are unique, you may need a $500,000 life insurance policy to: 

• Help your surviving spouse or partner pay off your debts
• Cover the education costs for children
• Ensure your dependents can live comfortably after you’re gone

How do I buy a $500,000 life insurance policy?

Before considering the cost of $500,000 life insurance, determine if this amount meets your needs. Calculate the financial obligations your family would have without you, such as debts and loans. See if you want the life insurance payout to cover lost income, education costs, and end-of-life expenses. Once you have figured out the right coverage amount, decide on the duration of the policy.

People use term life insurance to address financial needs that will end at a certain point in the future, for example, the years until your children start earning or you retire. If you want coverage that lasts your entire life, a whole life or universal life plan will fit you better. 

Whether you decide on term or permanent life insurance, you’ll likely have to undergo a paramedical exam. Life insurance companies typically require a medical exam to gain a detailed understanding of your health. Non-medical exam life insurance plans are available, but to qualify you should be in great shape. 

Finally, consider the financial stability of the insurer you have zeroed in on. Independent rating agencies, like AM Best, evaluate the creditworthiness of insurance companies and rate them accordingly. Since a life insurance claim is usually paid decades after the contract’s start date, evaluating an insurance company’s financial strength is particularly important.

You want the insurer to be around to pay a claim should you file one and be able to do so without any unnecessary delays. Here's our review of the top life insurance companies in Canada.

Conclusion 

The cost of a $500,000 life insurance policy varies depending on the insured’s age, gender, health, and smoking status. A term life plan worth $500,000 costs significantly less than a comparable whole life insurance policy. 

If you are looking to get an idea about how much a $500,000 term life or whole life policy will cost you, it costs nothing to run online quotes using our online calculator.

If you are not sure about which type of policy is a good fit for you or how much you need, a Dundas Life expert can offer you transparent and unbiased advice. 

Frequently Asked Questions

What does the death benefit cover?

Your beneficiaries can use the death benefit any way they want. They can use it to cover your end-of-life expenses, pay off debts, replace lost income, maintain their standard of living, and cover education costs. 

Can I modify or add beneficiaries to my policy?

The policy owner is the only person who can make changes to a policy’s beneficiaries. However, there is one circumstance when the policyholder needs another person’s permission to make changes to their life insurance beneficiaries. 

Life insurance beneficiaries are of two types: revocable and irrevocable. If you have revocable beneficiaries on your policy, then as a policyholder, you can update the beneficiary designation at any time. However, if your policy has an irrevocable beneficiary, you will need his or her written consent to make a change. 

Will the life insurance payout be taxed?

The death benefit is not taxable in Canada if the following two conditions are met: 

• Someone other than the estate (e.g., a spouse, child, parent, or  charity) is listed as the policy beneficiary; and
• The beneficiary receives the death benefit as a lump sum

Let’s say your spouse is the beneficiary on your policy. Upon your death, he or she decides to access the death benefit in one go. In this case, the death benefit will not be regarded as income and hence will not be taxable. But if your spouse decides to receive the death benefit in monthly installments for a fixed period, any interest earned on the death benefit will be taxable.