Whole life insurance

What is the reason for buying a “whole life” insurance policy? As the name implies, “whole life” insurance is meant to last for your entire life. This is the opposite of a temporary life insurance policy that covers a specific amount of time such as a 10-, 20-, or 30-year term. There are many good reasons for purchasing a whole life policy. The whole life policy never expires and in most cases, the premium doesn’t increase over the life of the policy. Some policies also build cash value that you can borrow from. Want a little help finding the right policy? Here are some of the best options for whole life insurance.

Best Whole Life for Building Cash Value: MassMutual

MassMutual

Death benefits are guaranteed through the MassMutual whole life policy, which means the beneficiary of your life insurance policy receives a lump sum cash payment regardless of when you die. Cash value benefits build over the life of the policy. If you are looking to use your life insurance as a supplement for your retirement income, the cash value of a whole life insurance policy can help contribute as a source of income. The MassMutual whole life policy also offers policy dividends, meaning you earn cash dividend payments annually. MassMutual is “A++” rated by A.M. Best and Insure.com rates MassMutual highly in the area of “value for the price.”

Best Whole Life for Pricing: Northwestern Mutual

Northwestern Mutual

Northwestern Mutual is the largest direct writer of life insurance in the United States. It offers policy dividends payments for its whole life insurance policy. Northwestern Mutual received a 4-out-of-5 score in a recent customer satisfaction rating from J.D. Power & Associates. The waiver of premium rider from Northwestern Mutual is available, which pays your insurance premium should you suffer a disabling injury.  Premiums are guaranteed not to increase and the whole life policy from Northwestern accumulates cash value that is tax-deferred. Northwestern Mutual’s whole life insurance rates are very competitive, particularly for seniors.

Best Whole Life for Dividend Returns: New York Life

New York Life

New York Life has consistently received the highest financial strength rating from four major insurance rating organizations (A.M. Best, Fitch Ratings, Standard & Poor’s and Moody’s Investor Services). Why is financial strength important in your life insurance company? The financial strength of an insurance company shows its ability to meet financial obligations and pay any claims presented. For policyholders, this means higher dividend payments.

Best Whole Life for Optional Benefits (Riders): MetLife

MetLife

MetLife received the No. 2 ranking in customer satisfaction from J.D. Power & Associates. The MetLife whole life insurance policy offers a guaranteed level premium and cash value benefits. Dividend payments are earned starting with the second year term of the policy. MetLife gives policyholders the options of adding more coverage to the basic policy by something called a policy rider. Several policy riders are available: The Enrichment Rider (option to add more coverage and cash value over time as you need it); Accident Death Benefit (additional payment for a death as the result of an accident); Child Term Rider (coverage added for your children); Enhanced Care (cash value available for prolonged illness with access to up to 90 percent of the policy value); Flex Term Rider (a term life policy can be added that adds to the coverage for a period of time); and the Disability Waiver (premium is waived for a disability of six months or more).

Best Whole Life for Final Expense Coverage: Transamerica

Transamerica

Transamerica’s whole life insurance policy is available in amounts up to $50,000. Group whole life insurance is also available through your employer as a voluntary benefit in amounts up to $25,000. Small whole life insurance policies are available through Transamerica designed to cover funeral costs and other final expenses. Premiums are guaranteed for life as long as you keep paying your premium. Cash accumulation (tied to the performance of investments) is available that can be borrowed from and the tax payable on cash accumulation can be deferred. The accelerated death benefit pays a portion of the policy’s death benefits if you have a terminal illness, chronic illness or a critical illness such as a heart attack or stroke after your policy goes into effect. Transamerica has an “A+” financial strength rating from A.M. Best.

Best Whole Life for No Medical Exams: Mutual of Omaha

Mutual of Omaha

Mutual of Omaha does not require a medical exam for coverage and offers whole life insurance in values from $2,000 to $25,000. Whole life insurance policies are available for individuals aged 45 to 85 (in NY, 50 to 75). Children’s whole life insurance is also available. Mutual of Omaha has an “A+” financial strength rating from A.M. Best. There is a graded death benefit for the first two years of the policy, meaning, if during the first two years of the policy the death results from natural causes, the beneficiary receives all premiums paid plus 10 percent. For death by accidental injury, full benefits are available as soon as the policy becomes effective. Coverage is guaranteed for as long as you continue to pay your policy premium. Since Mutual of Omaha is a mutual firm, it pays back policyholders in the form of dividend payments.

Best Whole Life for Cash Value Options: Guardian

Guardian

In addition to paying policy dividends, Guardian also excels at options available to customers looking to accumulate cash value. In fact, there are eight different cash value options, far more than other life insurers.  Guardian has an “A++” financial strength rating from A.M. Best. The whole life policy through Guardian offers guaranteed premium, cash value accumulations, potential dividend payments and tax benefits such as being able to defer paying taxes and the dividends accumulating on your policy. Also, if you have to borrow against your policy, the loan may not count as income for tax purposes. Several riders are available, including​ waiver of premium, enhanced accelerated death benefit, guaranteed insurability and the accidental death benefit.

Best Whole Life for Paying off Your Premium Early: State Farm

Courtesy of State Farm

A whole life insurance policy from State Farm has many benefits, including lifetime coverage, access to cash value (tax deferred), guaranteed death benefit and level premium amounts over the life of the policy. Policy limits are available up to $100,000. State Farm also has what they call “Limited Pay Life Plans” for 10, 15 or 20 years. What this means is that you can completely pay for your life insurance premium for the term you choose, in 10, 15 or 20 years. This will help you avoid having to pay life insurance premiums during your retirement.

You are eligible to earn dividend payments but these are not guaranteed. If you are looking for a value in whole life insurance, State Farm offers more policy discounts than many other insurers; (67 percent vs. 40 percent for the industry average). State Farm offers online quoting for its whole life policy. State Farm is “A++” rated by A.M. Best and has the highest rating from J.D. Power & Associates in the area of customer satisfaction.

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Whole life insurance is a cash value type of life insurance policy that provides protection during your entire lifetime and offers two key benefits:

a death benefit to be paid to the beneficiary in the event of your death

cash value accumulated over the term of the insurance that can be used as savings or to be borrowed against if you need the money while you are alive

Whole life insurance is also known as «straight life» and «permanent life insurance.»

A whole life policy covers you for your entire life, not just for a specific period (see term life insurance). Whole life insurance policies apply the premiums paid into both the savings or investments and the life insurance death benefit. Whole life insurance is similar to universal life insurance which also lasts your whole life.

How does whole life insurance cost compare to other life insurance?

Whole life insurance is more expensive than other life insurance because it isn’t just life insurance. When you pay your premiums for your policy you are putting part of it towards life insurance, but then another part of what you are paying goes into the investment portion. Naturally, you are going to be paying more for a whole life policy with investment savings, than you would if you just took a basic term life insurance policy. Your whole life insurance policy will also pay you tax-free dividends, this gives you some flexibility and benefit that you would not see with term life insurance.

Some people may choose to use that dividend to contribute to the payment of the premium or take cash payouts from it.outs from it.

Whole Life Insurance Options

There are 3 main kinds of whole life insurance:

Traditional Whole Life Insurance

Interest Sensitive Whole Life Insurance

Singe Premium Whole Life Insurance

A traditional whole life insurance policy gives you a guaranteed minimum rate of return on your cash value portion.

An interest-sensitive whole life insurance policy gives a variable rate on your cash value portion, similar to an adjustable rate mortgage. With interest-sensitive whole life insurance, you can have more flexibility with your life insurance policy such as increasing your death benefit without raising your premiums depending on the economy and the rate of return on your cash value portion.

Single-premium is for someone who has a large sum of money and would like to purchase a policy up front. Like other whole life insurance options, single-premium whole life insurance accrues cash value and has the same tax shelter on returns.

Whole Life Insurance Cost Compared to Term Life Insurance Cost

Even if there was no investment portion, you have to consider that with whole life insurance, you are purchasing coverage that will last your whole life as opposed to the shorter term life insurance which covers smaller lengths of time, like 10 or 20 years.

Whole life insurance could cost 5 to 10 times the amount of money that term life insurance costs, but it has cash value and lasts your whole life. You have to weight the options.

Insurance underwriters determine what they will charge for policies by analyzing risks. The higher the risk, the more expensive the policy. It is the only way insurance companies remain profitable. Therefore, there is a much higher chance that you will definitely die during the term of whole life insurance. With term life insurance there is less risk since the insurance company will not necessarily pay out a death benefit during the shorter policy period. So when a whole life insurance policy premium is calculated, it is essentially looking at financing the death benefit payout over the term of your life.

An advantage of whole life is that your death benefit and premium in most cases will remain the same. Whole life insurance also builds cash value, which is a return on a portion of your premiums that the insurance company invests.

Your cash value is tax-deferred until you withdraw it and you can borrow against it.

5 Benefits of a Whole Life Insurance Policy

A portion of your premium money goes toward your cash value

You may be able to use the savings portion of the policy to eventually pay your policy if you start early

Your premium will remain constant during the time you are covered unless you choose otherwise.

Unless you make a change to your whole life insurance policy, you have lifelong coverage with no future medical exams

Whole life provides tax saving opportunities while you are alive and also tax savings to your estate

Should you purchase a whole life insurance policy for an investment?

Although whole life allows the policyholder to accumulate wealth and use these savings during the course of their life, as far as investments go, whole life is not necessarily the best choice. Depending on market performance and your personal situation, you may consider purchasing a longer span term life insurance with a fixed annual rate and working with an investment advisor to figure out the best strategy for how you invest your money.

Building and Protecting Wealth with Whole Life Insurance

The rate of return on a whole life insurance policy is very low compared to other investments, even with the tax savings factored in. Life insurance should not be used solely as an investment tool and you should judge your policy choices on the protection and not only the rate of return. The examples below form a good starting point to understanding when whole life may work well for your situation.

5 examples of when a whole life policy could be a good choice for you

Whole life is an interesting option when you make it part of your financial strategy. An important part of a financial strategy though is understanding the financial implications and making a solid plan that makes sense. Getting solid financial advice is a big part of it. Here are 5 examples of when a whole life policy can help as part of your financial strategy and as a way for you to build or protect wealth.

Whole life insurance or permanent life is a good option if you are young and do not yet have means to save your money on your own and look at this as a forced savings mechanism. You do not necessarily have to take the majority portion of your life insurance in a whole life policy. You may take a percentage of your total needs, or just what you can currently afford, and use it as part of a multi-tiered lifelong strategy to ensure you always have a little life insurance and some savings, as you build your lifestyle. You could use the savings portion to secure loans or even a mortgage in the future if you one day want to buy a home or start a family. You can supplement a whole life policy with term life when you need more life insurance, and obtain that portion at the lower cost.

If you are in very good health or young but worry that as you get older you may get an illness, or may have trouble getting life insurance, then whole life is a good way to secure a policy that will last your entire life. Remember, you can always purchase less whole life, and supplement it with more term life at a lower cost.

If you are wealthy and have more money than you will need, then whole life insurance may be a very advantageous way to shelter/invest money due to the tax-free implications of the interest and dividends that build off the savings. In this situation, whole life can be advantageous for estate planning as well.

If you want to leave a large legacy death benefit to your family or someone else when you die, regardless of your age, then whole life is a good way to finance this. For example, if you want to leave $500,000 to your child when you die because they have special needs and will need this money no matter what their age, then whole life can help you finance that by means of securing the death benefit, even if you die when you are very old. In a case like this, you should really consider your policy as a way to finance this legacy death benefit because that’s what you are doing.

Different life insurance companies offer whole life policies at different prices

If you are dealing with an agent who can only offer you options from one life insurance company you should shop around to find alternative quotes.

A broker may be able to give you several quotes for whole life insurance, with various options.

A financial advisor can review various aspects of your financial plan.

You can get quotes with several agents to get an idea of price. There is not only one whole life insurance policy to choose from, there are many. Be informed.

The bottom line on whole life insurance

Whole life insurance will provide a death benefit, tax benefits, and cash value, but will cost you a lot more than the cheaper more straightforward term life insurance option.

Whole life insurance is a safer permanent life insurance choice than some others, it can provide guaranteed interest, premium, and death benefit, so you know what to expect.

Whole Life is the most expensive option in the life insurance family of policies and may cost 5 to 10 times more than a term life policy and a little more than a universal life policy.

Get whole life while you are young as part of a strategy to maximize benefits, or when you are older if you are wealthy and want to do something with all your extra money.

Make sure you will be able to pay your life insurance policy. Buying a whole life policy will not help you if you end up skipping payments or choosing an amount you can’t afford and have to try and switch life insurance policy later, or worse get canceled and end up losing everything. Start reasonably, you can always add coverage as you need it. The important thing is to start somewhere.

Make sure that the insurance company you are purchasing your life insurance policy from has strong financial ratings, you are investing in a policy that will last a lifetime, so the insurance company you choose should have good stability.

Beware of hidden costs in whole life policies

Do not ever just buy whole life insurance because someone says its the best choice. Whole life insurance pays higher commissions to the broker, and may also include fees for the management of the investments. This is totally normal for investments, you will usually pay fees somewhere, but make sure you discuss these aspects with an advisor and have been well informed on your choices and what to expect.

Tip: Asking your financial advisor or life insurance broker or agent questions will yield the best results for you long term. If you don’t like how they handle your answers, find someone you are comfortable with. This is your life you’re investing in and your family’s security.

Stocks are volatile, will that impact your whole life policy?

Address concerns about fluctuating stock market prices, for example, ask your advisor what they think of what happened with universal life policies in the past 20 years. Make sure you are comfortable with the answers you get. Find out how your whole life policy will protect you and how the savings portion works. Being well informed will always protect you fully and a good advisor will not be annoyed with your life insurance questions but will be happy to thoroughly review your concerns and give you guidance.

Additional considerations: if you really want to invest a couple of hundred dollars a month into «savings», you should speak to a financial advisor who can review a strategy that will benefit you best. Then once you have looked at all the options, make an informed decision. Whole life may be the best decision for you, but you need to explore all your options to know.

Need life insurance but not sure you can afford the premiums of whole life? Check out term life: Term Life Insurance: Insurance for Your Budget