Simple Guide To Understanding Whole Life Insurance

Table of Contents

If you’re starting your journey into buying a new life insurance policy, you will quickly notice that you have a few different life insurance options to choose from. Two of the most popular choices will be term life insurance and whole life insurance.

Both term life insurance and whole life insurance share a common feature. They both provide financial protection in the form of a death benefit that is payable to your beneficiary upon your passing. The only requirement is that the policy is active at the time of your death.

While these two popular life insurance options can provide financial security to your loved ones, how they work are entirely different from each other.

For starters, term insurance policies only provide temporary life insurance coverage for a specific duration of time, referred to as contract lengths. Contract lengths can range anywhere from 10, 20, or 30 years long.

How you choose a contract length depends on how long you believe your life insurance needs will last. For example, maybe you want life insurance coverage while raising your children, or perhaps until your mortgage is paid off or even long enough that it covers you up until you have retired.

Because term insurance is temporary life insurance protection and the likelihood of outliving your policy is very high, coverage is much more affordable than a permanent plan such as whole life insurance. 

It is like having one long continuous contract that theoretically lasts your entire lifetime with whole life insurance. Therefore, you do not need to worry about picking the perfect contract length or even worry about your coverage expiring later in life.

A whole life insurance policy is suitable for individuals who feel that their life insurance needs are permanent and want the satisfaction of knowing that their beneficiary will receive a death benefit payment no matter when they pass away.

In addition to lifelong protection, whole life insurance can build up a cash value, whereas term insurance cannot—more on that shortly.

As you compare rates between term life insurance and whole life insurance policies, there is one thing that you will quickly notice, and that’s the difference in cost.

Whole life insurance is a much more expensive life insurance option when compared to term life insurance rates. The cost difference between term insurance and whole life insurance can range anywhere from 5-15x.

After seeing such a significant cost difference, you may be wondering why whole life insurance policies are so expensive and whether or not they’re worth the cost?

For some people, the cost difference may be justifiable for what the coverage offers, and for others, it will be a complete waste of money.

This article will be an entire guide to helping you understand the basics of whole life insurance so that you can make a well-informed decision when it comes to purchasing a life insurance policy.

What Exactly Is Whole Life Insurance?

Whole life insurance is one of the oldest forms of life insurance coverage. Owning a whole life insurance plan provides financial security while you’re living and after your death. But, most importantly, whole life insurance policies bring peace of mind knowing that your life insurance protection will last an entire lifetime immediately after you have purchased a plan.

So what is whole life insurance?

Whole life insurance is permanent life insurance coverage that lasts your whole life. It does not offer multiple contract lengths like term life insurance. Instead, a whole life insurance policy is one continuous contract that lasts to a specific age of generally 100 or 121, depending on the insurance provider.

While permanent life insurance protection is one of the main features of whole life insurance, it is not the only feature. Whole life insurance also includes many guarantees starting with premium payments.

Guaranteed Premiums: When you purchase a whole life insurance policy, your premium payments are guaranteed to stay the same price throughout the entire life of the contract. So, for example, let’s say you purchase a whole life insurance policy at the age of 35, and your monthly premium is $100. That monthly premium is guaranteed to stay the same price forever.

After you have been approved for a policy and a final premium payment has been determined based on the result of underwriting, it will never increase regardless of any health or lifestyle changes you may experience later in life.

The only requirement is that you pay your premium payments when due so that your policy will remain active and does not lapse. If a life insurance policy lapses, it will terminate the contract.

Guaranteed Death Benefit: Along with a premium payment that is locked in for the contract’s life, another guaranteed feature is the death benefit. The death benefit is the amount of money you have chosen for your beneficiary to receive when you pass away.

With whole life insurance, the death benefit is guaranteed never to decrease. Plus, as with all life insurance plans, the death benefit is free from being taxed when paid out to your beneficiary.

Guaranteed Endowment: As mentioned, whole life insurance is permanent life insurance coverage that will last your entire life. However, in reality, they are a contract, and that contract does have an end date based on the insured living to a specific age determined by the insurance company.

The period at which the life insurance contract ends is often when the insured has reached the age of 121, which is known as the guaranteed endowment age.

While most people will not reach the endowment age of a whole life insurance contract considering the average life expectancy in the U.S. is 78.99, the life insurance contract still requires an end date.

The guaranteed endowment feature guarantees that if the insured outlived the whole life insurance contract, the insurance provider would pay out the full death benefit to the policyholder, and the insurance policy would terminate.

Guaranteed Cash Growth: The final guarantee and probably the most attractive feature of whole life insurance is the cash value accumulation growth you build by having a life insurance policy.

Unlike term life insurance which is death benefit coverage only, whole life insurance is designed to offer death benefit protection and a guaranteed cash value growth component.

The longer you have the life insurance coverage, the higher the cash value will grow. Theoretically, the cash value of a whole life insurance policy at a minimum should reach the same amount of the death benefit by the time the contract has reached the endowment age.

The fact that policies last your entire life and have a cash value is the two main reasons whole life insurance is so expensive, but with the cost also comes many guarantees that are not offered on a term insurance plan, specifically permanent protection and guaranteed cash value growth.

Think of it this way, if you take out a 20-year-term policy when you’re 30, that policy will expire when you’re 50. If you have outlived your term insurance contract, which is highly likely, the coverage expires.

You do not receive any cash or other benefits once a term insurance policy ends. As a result, some people look at term insurance as a waste of money since they are not receiving any return on their investment into the life insurance coverage after the contract ends.

How Whole Life Insurance Builds Cash Value Growth

The cash value growth of a whole life insurance policy is primarily based on the premium payments you pay for having the life insurance coverage. It is like having a forced savings account that is attached to a life insurance policy.

Why do we refer to it as forced savings?

Each time you pay your whole life insurance premium, the insurance company will divide a predetermined portion of every payment into three places:

  1. Towards the cost of your policy
  2. Towards administrative fees
  3. Towards your cash-value account

As the policyholder, you do not choose how much of the premium goes towards the cash account. That amount is all mathematically determined by the insurance company.

The premium split between these three places will change over the life of your policy. When your policy is new, most of your premiums will go toward the cost of coverage and administrative fees.

That means that for the first couple of years of your policy, generally the first two years, your cash value is zero. However, after the second policy year and thereafter, you will see the cash value account grow.

Before purchasing a whole life insurance policy, you should be presented with a whole life insurance illustration. An illustration provides a detailed outline of the life insurance coverage and an outlook of how the cash values will perform year after year.

Within the cash value section of the whole life insurance illustration, you will be able to view both the guaranteed rate of return value along with the non-guaranteed values.

The guaranteed rate of return is how much interest your cash-value account builds on. The rate of return is typically enough that if you lived to be 121 and never touched your cash value, you would have an equal amount in your cash-value account and your death benefit.

Non-guaranteed values are based on potential dividends paid by the insurer to the policyholders. We will be getting into what whole life insurance dividends are shortly, but in short, they fall under non-guaranteed values as dividends are not guaranteed to be paid out. 

The cash value of your life insurance policy is also tax-deferred as it grows. So, that means you will not pay taxes on the cash growth of your policy. The only time when there could be a taxable occurrence on the cash value of a life insurance policy is if your total cash growth exceeds the total amount of premiums paid into the life insurance coverage.

Taxable gains would generally only occur if you had the life insurance policy for a considerable amount of time and then decided to surrender the life insurance coverage, meaning canceling coverage for the full cash value.

Should that occur, then the taxable portion would be any amount over the total amount of premiums paid into the life insurance contract. The entire cash value amount would not be taxable, only the gains over the total amount of premium invested into the contract’s life.

Whole life insurance dividends

Dividends are a policy feature offered specific whole life insurance policies. There are two essential factors that you must be aware of when it comes to buying whole life insurance with dividends:

  1. Only participating whole life insurance plans are eligible to receive dividends
  2. Dividends are not always guaranteed to be paid out by the insurance company

Whole life insurance plans, in general, are available in two options of either participating (par) or non-participating (non-par).

Participating whole life insurance plans are structured so that the policyholder can receive an annual dividend should the insurance provider have a profitable year. These are whole life insurance policies that are offered through mutual life insurance companies. 

Life insurance companies are formed as either mutual life insurance companies or stock life insurance companies. A mutual life insurance company does not have shareholders. Instead, the policyholders are members of the company. If a mutual company is profitable, a portion of its profits is shared with its policyholders in the form of a dividend payment.

Stock life insurance companies do not pay out dividends. Instead, these companies offer what is referred to as non-participating whole life insurance plans. A non-participating whole life insurance plan offers all the same benefits as a participating life insurance policy, except for dividends.

As a result, non-participating plans are often a more affordable whole life insurance option when compared to participating whole life insurance plans. However, on the downside, the cash value growth will be limited to the guaranteed rate of return and will never have the potential of receiving a dividend to grow the cash value account further.

Stock-owned life insurance companies share their profits with their shareholders and do not pay dividends to their policyholders. Although there is nothing wrong with stock-owned life insurance companies, you will want to stick with a mutual life insurance company if you want a whole life insurance policy that has the potential of paying out dividends and maximizing cash value growth.

What consists of the insurance company having a profitable year?

A lot goes into this calculation, but the three primary factors that insurance companies look at are their interest earnings, claim payouts, and operating expenses for the entire year. If the insurance company has had a profitable year, it can be shared in an annual dividend payment with its policyholders.

Dividends come in several different options. If a dividend is to be paid out, the insurance company should allow you to choose how you would like to receive your dividend. Here is a list of some of the more common dividend payout options:

  • Cash: Paid to the policyholder in cash payment
  • Dividend Accumulations: Dividends are re-invested into the policy where they can earn interest
  • Loan Repayment: The dividend payment can be used to pay back any outstanding loan balances if money was borrowed from the cash value account
  • Paid-up Additions: Purchases paid-up whole life insurance, ultimately increasing your overall death benefit and cash value growth potential – most popular option
  • Premium Reduction: Reduces future premium payments by utilizing dividends to make premium payments
  • Term Insurance: Used to purchase extra coverage in the form of term insurance

It’s imperative to understand that dividends are not guaranteed. For example, you may receive a dividend payment one year and the following year not receive one. It can consistently fluctuate too. It all boils down to how profitable of a year the insurance company has had.

As a word of advice, when choosing a dividend-paying whole life insurance company, we strongly recommend looking into the insurance company’s history of dividend payouts. Many of the largest mutual life insurance companies have consecutively paid out an annual dividend for decades. Some even have paid out a dividend since the start of the company.

Plus, a mutual-owned life insurance company with an excellent track record of paying an annual dividend to its policyholders will not shy away from sharing a historical dividend chart. That information makes a great reason to purchase their coverage.

How you can get money from your whole life insurance policy

So how exactly can you access the cash value of a whole life insurance policy?

There are a few different ways:

Taking out a loan against your policy – Having a whole life insurance policy is like accessing your own personal bank. As soon as you start building up cash value growth, the money can be borrowed at any time by taking out tax-free loans against the cash value account.

This is one of the most significant benefits of owning whole life insurance. With proper strategic planning, the cash value accumulation can also create an income stream that can be beneficial later in life, especially if you’re looking to supplement retirement income.

However, there are some important factors that you need to understand when taking a life insurance loan:

First, when requesting a policy loan, you are borrowing the money from the life insurance company and utilizing your cash value accumulation as collateral.

Therefore, you cannot request more than what you have currently accumulated in your cash account. On the other hand, your actual cash value never leaves your policy, so ultimately, you’re still collecting interest on your total cash value.

Second, policy loans require paying an annual interest charge on the unpaid balance of the loan. If you don’t pay your annual interest rate, it will be added to the outstanding loan balance.

Third, you will be required to pay back the outstanding loan or run the risk of the balance being deducted from the death benefit payout should you pass with an outstanding loan balance. 

Should you ever choose to request a loan from the cash account of your life insurance policy, there is no fixed payment schedule that you will be required to follow. Instead, loan re-payment is flexible and based on when and how often you choose to pay on the balance.

However, keep in mind that the longer there is an outstanding balance owed on the loan, the longer it will accumulate interest on the balance.

Interest rates on a life insurance loan will fluctuate depending on the provider but often range from 4-8% and are again only charged on the outstanding balance once per year. As a result, interest rates are typically lower than rates on bank loans. Plus, there are no credit checks or lengthy application requirements for a loan from your policy, so you can generally access the money very quickly.

Partial withdrawal – If you don’t want to worry about having to pay back a loan on your cash-value account, you can request a partial withdrawal from your policy’s cash value. Any money you withdraw will be deducted from the total death benefit.

Your insurance company may also have a surrender charge depending on how long it has been since you purchased the life insurance policy when you request a partial withdraw.

However, the benefit of a partial withdraw is that you don’t have to worry about paying back a loan. Instead, you still receive life insurance coverage but at a reduced death benefit amount based on the total amount you have chosen to surrender.

Surrender your policy – You can fully surrender your policy if you no longer need it. When your surrender your life insurance policy, you’ll get back the total sum of your cash-value account. However, you’ll face steep fees if you surrender your policy too early, known as the surrender period.

The surrender period is a timeframe set by the insurance provider. A penalty is charged to the policyholder for canceling their coverage during the early years of having their life insurance coverage.

The amount charged to the policyholder and duration of the surrender timeframe is different with all provides. Generally, most cash value life insurance policies will have a surrender fee during the first ten years of the policy. The fee will be highest in the first year and then gradually decrease every year until there is no longer a surrender fee.

It’s important to note that if you never use your cash value, you’ll lose it. So, if you pass away without ever using the cash value, the money will go back to the insurance company in most cases.

However, withdrawing the money is tax-free. Plus, there are no penalties or restrictions on taking out money from your cash value when you’re under 60, the way there is with 401ks and IRAs. You can take out money anytime you have large enough cash value, no matter your age.

The Cost of Whole Life Insurance

Now that you should have a good understanding of whole life insurance and how the cash value works let’s look at the cost of owning a policy.

Compared to the other life insurance options, there’s no doubt that whole life insurance is expensive. Take, for example, the rates for a term life insurance policy versus a whole life insurance policy.

As mentioned earlier, you can expect to pay anywhere from 5 to 15 times more for whole life insurance compared to the rates of a term insurance policy with the same death benefit.

But what is the driving factor for whole life insurance being so expensive?

Well, let’s look at the two popular life insurance options, term insurance and whole life insurance in general, to understand the cost difference.

Term insurance is the most affordable form of life insurance coverage you can get. This is because term insurance is temporary coverage. With term insurance, you’re purchasing coverage based on contract lengths of 10, 20, or 30 years.

The insurance company reduces its risk of paying out a potential death claim by limiting longer contract lengths to older applicants. This, in turn, lowers the overall cost of owning a term insurance policy.

For example, a 30-year term insurance contract with most insurance providers is capped at a maximum age of 55. So an applicant applying for a 30-year term insurance policy at age 55 would have coverage until they have reached 85.

The oldest age that someone can obtain a new term policy is at age 80, and at that age, the longest available term length would be a 10-year plan and would only provide protection until the insured reached age 90.

When you purchase a term insurance policy at some point, the insurance contract will end, and once it does, coverage terminates. So, statistically, the chances of a policyholder outliving their term insurance contract are highly likely, and the insurance companies know that.

Now you could re-apply for a new policy, but the insurance company will have you go through new underwriting. If you have had a negative health change since your previous term insurance, you may run the risk of not qualifying for a new contract.

Term insurance offers a much lesser risk of the insurance company paying out a potential claim. Therefore companies charge less for the term insurance coverage than they will on a whole life insurance policy.

Lastly, you’re only paying for death benefit protection with term insurance, so the coverage doesn’t require extra money to build up a cash value account. Term insurance has no cash value growth potential, so there is no return on your investment towards having the coverage once the coverage is over—another reason why term insurance is priced cheaply.

With whole life insurance, two main factors account for its high cost. First, you’re getting a lifetime of insurance protection, so the insurance company paying out a death claim is inevitable, provided you pay your premiums to keep the coverage active.

Second, the cash-value account is designed to become the same value as the death benefit when the policy has reached endowment, which also drives up whole life insurance rates.

Take a look at the rate table below, showing examples of the cost difference between term insurance and whole life coverage with the same death benefit.

Term vs Whole Life Cost Comparison - $100,000

AgeTerm 10-YearTerm 30-YearWhole Life
Male 30$7.37$11.14$80.60
Male 40$8.25$15.39$120.60
Male 50$14.23$35.95$176.73
Male 60$29.76NA - Cutoff age 55$269.34
Male 70$85.85NA - Cutoff age 55$437.66
Male 80$393.24NA - Cutoff age 55$948.97
AgeTerm 10-YearTerm 30-YearWhole Life
Female 30$7.04$9.85$72.44
Female 40$8.07$13.27$103.69
Female 50$12.65$28.86$150.04
Female 60$24.31NA - Cutoff age 55$235.01
Female 70$59.29NA - Cutoff age 55$371.74
Female 80$291.58NA - Cutoff age 55$750.61

Monthly male/female premium rates current as of 12/1/2021 showing the rates of a $100,000 10-year, 30-year term life insurance policy versus the month rates of a $100,000 whole life insurance policy. The rates in the sample are based on the health class of an individual in excellent health with no tobacco use. For the most accurate rates, be sure to use the quote button located below.

Other factors that affect your whole life premiums

The price you pay for whole life insurance will depend on you and your individual life insurance needs. However, life insurance rates are primarily determined by:

Your age – Life insurance is always less expensive when you’re younger. That’s because your life insurance rate is based on your overall risk of death. As a rule, the older you are, the higher your risk of death is. So locking in a rate when you’re young is always a wise choice.

Your health – Your medical history plays a big role in the price you pay for life insurance. Just like your age, this happens because insurance companies assign rates based on your risk of death. So, the healthier you are, the lower your rates will be.

Your hobbies – Life insurance companies also look at your hobbies and lifestyle. High-risk hobbies will increase your premiums or potentially lead to a decline in coverage.

The life insurance company will get your information to underwrite your eligibility from your application, the medical exam, and the help from third-party databases such as information requested from the Medical Information Bureau and LexisNexis.

In addition to the factors above, they’ll also look at your criminal record, driving record, and fiances. Together, this information will be used to assign you to a life insurance rate classification.

Of course, there’s another major factor in the cost of your policy. The amount of your death benefit makes a big difference in how much you’ll pay. No matter your age, health, or other factors, buying a million dollars in coverage will cost more than buying $50,000.

The right amount of life insurance and the type of coverage is a highly individual choice. It all depends on your circumstances, budget, and overall financial goals.

Applying for Whole Life Insurance

Applying for whole life insurance works the same way that applying for other types of insurance does. You’ll need to select a policy, fill out an application, and take a medical exam. However, before you jump into your application, there are some steps you should take:

Get quotes from multiple life insurance companies – Getting quotes from many insurance companies can help ensure you’re getting the best price. Many online websites such as No Medical Exam Quotes can offer instant online quote tools that show you the rates for life insurance coverage among multiple providers.

Look for providers that offer a good rate of return – The rate of return determines how fast your cash-value account will grow and is based on a guaranteed interest rate attached to the cash account. However, not all companies use the same interest rate and can fluctuate between 1-4%. Therefore, it’s always a good idea to request and review illustrations to the performance of the cash value growth on both the guaranteed rate of return and the non-guaranteed rate of return.

Ask about the company’s dividend-paying history – If you’re buying whole life insurance for its cash value aspect, be sure to look into companies that have a good record of paying out an annual dividend to their policyholders. For example, mutual companies that have consecutively paid out a yearly dividend should be able to provide a record of their historical dividend payouts.

Ask an agent to help you find a policy if you have health conditions or other special considerations – It’s always a good move to work with an agent if you have a pre-existing health condition or other unique circumstance. They can help match you with the best companies that will be the most favorable to your circumstances. 

Check the ratings of any company you’re considering – Companies like AM Best, Moody’s, and others rate the financial strength of insurance companies. Most companies will display their ratings on their website. If not, you can search for their ratings online.

Our Top 5 Picks for the Best Whole Life Insurance Companies In 2021

Multiple insurance companies can offer whole life insurance coverage. So how do you know who are the best companies? 

Everyone will have their own opinion on this popular question, and the responses are likely to vary from expert to expert. So when we put together our own list of the best whole life insurance companies, we took a look at a few different factors:

Company Structure: The insurance companies that we considered as the top whole life insurance providers are structured as mutual companies. These companies offer participating whole life insurance coverage in which their policyholders are members of the company and are eligible to partake in the companies profits in the form of a dividend.

Company History: These top whole life insurance companies are some of the oldest insurance companies in the industry, all dating back to the mid to late 1800s. They have a proven track record of weathering the storm during tough economic times and striving during good times.

Financial Strength Ratings: Independent rating organizations have awarded these top five companies with the highest financial strength ratings. Their high ratings are an indication that each of these companies can keep its financial commitment to its policyholders.

Dividend Payouts: While dividends are not guaranteed, these five whole life insurance companies have an incredible history of paying out an annual dividend to their policyholders year after year.

Coverage Features: Lastly, we examine these companies’ whole life insurance coverage from their payment structure to included benefit and optional policy riders.

5 Best Dividend Paying Whole Life Insurance Providers In 2021

  • Foresters
  • Guardian
  • MassMutual
  • New York Life
  • Penn Mutual

Foresters

Foresters Advantage Plus IINon-MedicalMedical
Issue Ages0-750-85
Coverage AmountsAges 0-15: $25,000 - $150,000
Ages 16-55: $25,000 - $400,000
Ages 56-75: $25,000 - $150,000
Ages 0-75: $50,000 - $500,000+
Ages 76-85: $25,000 - $500,000+
Level Pay Contract OptionsLevel pay to age 100
Limited Pay Contract Options20-pay
EndowmentAge 121
Built-in BenefitsCommon Carrier Accidental Death Rider: may provide an additional benefit if death is due to an accident or accidental injury that happens while riding as a farepaying passenger on a common carrier such as plane, bus, or train.
Family Health Benefit Rider: may provide a payment to help you cover some family health expenses (such as an ambulance ride) that occur as a result of certain natural disasters which include hurricanes, tornados, and earthquakes.
Accelerated Death Benefit Rider: may allow you to receive a payment of a percentage of the accelerated death benefit if the Insured is diagnosed with a covered illness which may include certain critical, chronic, and terminal illnesses.
Optional BenefitsCharity Benefit Provision: The Charity Benefit is a contractual provision that provides an additional benefit equal to 1% (to a maximum of $100,000) of the face amount at time of death of the insured. The benefit is payable to an eligible charity named as the beneficiary for the benefit.
Optional Policy RidersPaid-up Additions (PUA) Rider: Provides the ongoing opportunity to purchase paid-up additional insurance.
10-Year Term Rider: Provides level term life insurance on the life insured with level premiums for the first 10 years.
20-Year Term Rider: Provides level term life insurance on the life insured with level premiums for the first 20 years.
Accidental Death Rider: Provides additional coverage in the event of an accidental death, caused by an accidental bodily injury, and death occurs within 180 days of the injury.
Guaranteed Insurability Rider: Provides an opportunity to purchase additional life insurance on the life of the insured on an option date, by up to the rider benefit amount, without further evidence of insurability.
Waiver of Premium Rider: Pays the premium, should the insured become totally disabled. To qualify for this benefit the insured must be totally disabled for a continuous period of at least six (6) months.
Children’s Term Rider: Provides level term insurance for each insured child (as defined in the rider and includes children born to, adopted by, under the legal guardianship of, or a stepchild, of the insured).
Dividend OptionsPaid-up Additions (PUA)
On deposit with (minimum 0.5% interest)
Reduce premium payments
Paid in cash
Foresters 10 Year Historical Dividend Interest Rate
2011201220132014201520162017201820192020
5.98%6.09%6.45%6.42%6.65%6.83%6.58%6.23%6.00%5.80%

Guardian

Guardian Core Whole LifePaid Up Age 99
Issue Ages0-80
Minimum Coverage Amounts$250,000 Preferred Plus
$100,000 Preferred
$25,000 All other health classes
Level Pay Contract OptionsLevel pay to age 95 or 99
Limited Pay Contract Options10-pay, 20-pay or paid up at age 65
EndowmentAge 100
Built-in BenefitsEnhanced Accelerated Benefits Rider: Allows you to accelerate the benefits of a whole life policy for chronic and terminal illnesses. A portion of your policy’s death benefit may be accelerated during your lifetime if you become permanently unable to perform two out of six Activities of Daily Living (ADLs), if you become permanently cognitively impaired, or if you are diagnosed with 12 months or less to live.
Optional BenefitsIndex Participation Feature (IPF): The IPF adds a new dimension of index-linked upside potential for building whole life cash value. This innovative feature, offered only by Guardian, allows policyholders to allocate all or a portion of their cash value of paid-up additions to receive a dividend adjustment based on the movement of the S&P 500® Price Return Index, subject to a cap and a floor. The rider provides you with a unique opportunity for index-linked upside potential not normally found with whole life policies. And the floor ensures that your year-to-year downside market exposure is limited — supporting the guarantees that consumers have come to expect from whole life. Finally, you have the ability to choose your IPF allocation amount, anywhere between 0% and 100% of the cash value of paid-up additions each year, giving you maximum flexibility.
Optional Policy RidersAccidental Death Benefit: Provides that Guardian will pay the amount of accidental death benefit specified in the policy if death results from accidental bodily injury and occurs within 120 days of the accident.
DuoGuard: Allows the Beneficiary to purchase a new insurance policy without additional underwriting on up to five Designated Insureds (including him/herself) for up to 90 days after the death of the Primary Insured.
Guaranteed Insurability Option: Provides the owner with the right to purchase additional insurance without evidence of insurability.
Long Term Care Rider: Allows the insured to accelerate a portion of the policy’s death benefit to help cover the cost of long-term care services during your lifetime.
Paid-up Additions Rider: Gives the owner the right to purchase Paid-Up Additional participating insurance on the Insured's life in addition to the base face amount.
10-Year Annually Renewable Term: Provides term insurance for ten years provided the Rider premium is paid each year.
Waiver of Premium: Provides that Guardian will waive premiums becoming due while the Insured is totally disabled if the disability is continuous for at least six months.
Dividend OptionsPaid-up Additions (PUA)
Receive in cash payment
Reduce premium payments
Purchase additional term insurance
Accumulate with interest
Apply to outstanding policy loans
Guardian 10 Year Historical Dividend Interest Rate
2012201320142015201620172018201920202021
6.95%6.65%6.25%6.05%6.05%5.85%5.85%5.85%5.65%5.65%

MassMutual

MassMutual Whole Life Legacy 100Paid Up Age 100
Issue Ages0-90
Minimum Coverage Amounts$25,000
Level Pay Contract OptionsLevel pay to age 100
Limited Pay Contract Options10-pay, 15-pay, 20-pay or paid up at age 65
EndowmentAge 100
Built-in BenefitsAccelerated Death Benefit for Terminal Illness Rider: Allows the policyowner to receive an advance of the policy death benefit if the insured has a terminal illness, expected to result in death within 12 months (in most states). The proceeds may be used for any purpose, including to pay medical and living expenses of the insured.
Optional BenefitsTransfer of Insured Rider: Allows the owner to substitute a new insured for the current insured under the policy. There must be an insurable interest between the owner and the new insured. The new insured cannot be older than 75 and evidence of insurability must be provided.
Optional Policy RidersAdditional Life Insurance Rider: Allows the policyowner to purchase additional participating paid-up whole life insurance, also called paid-up additions (PUAs). ALIR increases the policy’s death benefit and accelerates cash value growth.
Guaranteed Insurability Rider: Guarantees policyowners the right to purchase a specified amount of additional insurance without evidence of insurability at certain election option dates.
Life Insurance Supplement Rider: Allows the policyholder to get the coverage they need at a price they can afford by providing a level death benefit composed of one-year term insurance and paid-up additions.
LTCAccess Rider: Allows policyowners to accelerate the payment of a portion of their policy death benefit during their lifetime to help pay for covered long term care services.
Planned Additional Life Insurance Rider: An additional version of the Additional Life Insurance Rider that provides additional flexibility to purchasing paid-up additions (PUAs).
Renewable Term Rider: Provides level term insurance that is renewable annually to the insured’s age 95. Premiums are expected to be level for the first 10 years, then increase annually.
Waiver of Premium Rider: Provides that premiums for the base policy and all riders will be waived if the insured becomes totally disabled, as defined in the rider.
Dividend OptionsCash
Reduce premiums
Paid-up additions
Accumulation
One-year term insurance
Reduce loan balance
MassMutual 10 Year Historical Dividend Interest Rate
2012201320142015201620172018201920202021
7.00%7.00%7.10%7.10%7.10%6.70%6.40%6.40%6.20%6.00%

New York Life

New York Life Whole Life InsurancePaid Up Age 100
Issue Ages0-90
Minimum Coverage Amounts$25,000
Level Pay Contract OptionsLevel pay to age 100
Limited Pay Contract OptionsMultiple limited pay options as low as 5-pay
EndowmentAge 121
Built-in BenefitsLiving Benefits: Allows a portion of the policy’s eligible death benefit to be accessed should the insured be diagnosed with a terminal illness with a life expectancy of 12 months or less.
Optional BenefitsInsurance Exchange: Provides for the transfer of policy coverage to a successor insured, subject to evidence of good health. There may be a cost to exercise this rider, depending on the policy value adjustments that occur when the insured is changed. Exercising this rider will create a taxable event to the policy owner if there has been a gain in the contract.
Option to Purchase Paid-Up (OPP) Additions: An economical way to increase your death benefit protection and build more cash value. OPP premiums are used to purchase additional, paid-up life insurance that has cash value and loan value, and is eligible for dividends. OPP premiums are subject to an expense charge at the time of payment.
Spouse’s Paid-Up Insurance Purchase Option: At the time of the insured’s death, gives the spouse/beneficiary the right to purchase a new paid-up life insurance policy on his/her life without having to provide evidence of insurability.
Optional Policy RidersAccidental Death Benefit: Provides an additional death benefit equal to the face amount of the policy if the insured dies as a result of an accident prior to age 70.
Child’s Protection Benefit: Provides for premiums to be waived until the policy anniversary closest to the child’s 25th birthday, in the event the premium payer (parent or guardian) dies or becomes disabled.
Chronic Care: Allows you to leverage your life insurance coverage to help mitigate the costs associated with chronic-care needs.
Disability Waiver of Premium: With the purchase of this rider, New York Life will waive premiums should the insured become totally disabled, as explained in the policy.
Dividend Option Term: Combines a decreasing term rider with the paid-up additions dividend option. Each year, the amount of term insurance decreases automatically by the same amount as the increase in permanent insurance provided by the paid-up additions. The remaining term insurance may be convertible to any whole life policy New York Life makes available on an attained age or original age basis.
Level Premium Convertible Term: Provides additional term coverage on the primary insured, on the insured’s spouse, children, parents, and/or business partners. Premiums are level and are guaranteed not to increase for the first five years. It also offers a 10-year conversion privilege to upgrade to cash value-building permanent insurance.
Payer Protection Benefit: Waives premiums if the covered premium payer (who is not the insured) becomes totally disabled, as explained in the policy.
Policy Purchase Option: Guarantees the option to purchase additional insurance at certain ages and special life events, without having to provide evidence of insurability.
Yearly Convertible Term: Provides additional term coverage with premiums that are guaranteed for the first 10 years and premiums increase each year. The conversion privilege is generally available until the later of 10 years or the policy anniversary at age 55 to upgrade to cash value-building permanent insurance.
Dividend OptionsPaid-up additions
Dividend accumulation
Premium payment
Cash
New York Life 10 Year Historical Dividend Interest Rate
2012201320142015201620172018201920202021
5.80%5.90%6.00%6.20%6.20%6.20%6.10%6.00%6.00%5.80%

Penn Mutual

Penn Mutual Guaranteed Whole Life IIPaid Up Age 100
Issue Ages0-85
Minimum Coverage Amounts$50,000
Level Pay Contract OptionsLevel pay to age 100
Limited Pay Contract OptionsMultiple limited pay options as low as 5-pay
EndowmentAge 121
Built-in BenefitsAccelerated Death Benefit Rider: This rider provides access to a portion of the policy death benefit if the insured is diagnosed with a terminal illness resulting in a life expectancy of 12 months or less.
Chronic Illness Accelerated Benefit Rider This rider provides access to a portion of the policy death benefit should the insured become chronically ill.
Optional BenefitsSupplemental Exchange: Allows the replacement of an insured with another insured who has the same relationship to the policy owner.
Optional Policy RidersAccelerated Permanent Paid-Up Additions Rider: This rider helps replace the term coverage more quickly through the purchase of additional amounts of paid-up whole life insurance.
Accidental Death Benefit Rider: This rider provides beneficiaries with an additional death benefit if the insured dies as a result of an accident. The minimum additional benefit amount is $5,000. Coverage ends at age 70. Charges are deducted until age 70.
Children’s Term Insurance Rider: This rider extends coverage for each eligible child in the insured’s immediate family until age 23. Coverage is available in $5,000 increments, up to a maximum of $25,000. There is only one charge, regardless of the number of children covered. In addition, each covered child may convert his or her coverage to a permanent policy with a Standard rating that builds cash value on the policy anniversary nearest their 23rd birthday, without submitting medical proof of insurability.
Disability Waiver of Premium Rider: After a waiting period of six months, this rider waives premiums for up to two years if the insured cannot work in their primary occupation due to disability. Additionally, if the insured is unable to work in any profession after two years, premiums will continue to be waived.
Enhanced Disability Waiver of Premium Rider: After a waiting period of six months this rider waives premiums if the insured becomes totally disabled and cannot work in their primary occupation for up to six years. Additionally, if the insured is unable to work in any profession after six years, premiums will continue to be waived.
Enhanced Permanent Paid-Up Additions Rider: This rider gives the policy owner the ability to make additional payments, up to an Annual Payment Limit and duration that is established at policy issue, to buy additional participating paid-up life insurance. These extra payments increase the policy’s death benefit, help build policy cash value faster and can be surrendered in the future to provide income or pay premiums.
Flexible Protection Rider: This rider provides access to a larger death benefit at a lower cost. The premium goes toward purchasing a combination of term life insurance and additional permanent life insurance coverage (paid-up additions). Any dividends earned must be used to purchase paid-up additions. Over time, the term life coverage is replaced with permanent paid-up life insurance coverage. Once all of the term life insurance has been replaced, the rider can continue and any additional rider payments made will add to the guaranteed policy values.
Guaranteed Purchase Option Rider: This benefit allows the insured to increase the amount of total coverage at certain option dates without evidence of insurability. This is accomplished through the issue of an additional whole life policy. This option may be exercised at the policy anniversary closest to the insured reaching ages: 22, 25, 28, 31, 34, 37, 40, 43 and 46. Alternative options are allowed for: marriage, birth of a child and adoption of a child. Exercising an alternative option will replace the next available option age.
Overloan Protection Benefit Rider: This rider can prevent the policy from lapsing, which can happen when an outstanding loan exceeds the policy’s cash value. If an outstanding loan exceeds 99 percent of the cash value, the rider keeps the policy inforce as a reduced paid-up policy with an outstanding loan. To exercise the rider, the insured must be at least 75 years old and the policy must be in effect for at least 15 years.
Dividend OptionsPurchase paid-up additions
Offset future premium payments
Dividend accumulation
Purchase term insurance
Repay loans
Cash payout
PennMutual 10 Year Historical Dividend Interest Rate
2012201320142015201620172018201920202021
6.34%6.34%6.34%6.34%6.34%6.34%6.34%6.10%6.10%5.75%

Honorable Mention - Northwestern Mutual

Northwestern Mutual is, without a doubt, a top whole life insurance provider.

However, the insurance company did not make “our top five list” because they are a captive life insurance provider. That means independent agencies such as ours cannot sell their life insurance products.

Since Northwestern Mutual life insurance products are only offered through representatives employed by the provider, it is difficult to get any information about their life insurance products as an independent agent.

You see, the companies listed within our top five list are all companies that we currently work with. Therefore, we have both experience and firsthand knowledge of how their coverage works. However, since we are not contracted to offer Northwestern Mutual and do not fully understand their whole life insurance coverage, we were unable to name them as a top whole life insurance option.

However, we can share some public information about Northwestern Mutual and its whole life insurance coverage. For starters, Northwestern Mutual has an extensive history as a company that dates back to 1857.

Northwestern Mutual led the pack based on whole life insurance policies issued in 2020, ranking #1 out of the top 25 U.S. life and health insurers in the U.S.

If you were wondering if they are a financially strong company, Northwestern Mutual has earned some of the highest ratings you can receive from the leading rating organizations such as AM Best, Fitch, Moody’s, and S&P.

When it comes to life insurance, Northwestern Mutual is well known for its whole life insurance coverage. From the little information we know about Northwestern Mutual and their whole life insurance coverage, they offer two different level pay options referred to as 90 Life and 65 Life. In addition, you may also choose from three limited payment options: a 10-pay, 20-pay, and 30-pay.

Along with having a few different payment plans to choose from, Northwestern Mutual whole life insurance plans also offer the following features:

  • Guaranteed death benefit
  • Guaranteed minimum cash value
  • Optional policy riders
  • Participating, shares in the company’s divisible surplus

Although dividends are not guaranteed, Northwestern Mutual has a good track record of paying an annual dividend to its policyholders. Here is a closer look at the last ten years of dividend interest rates declared by Northwestern Mutual.

Northwestern Mutual 10 Year Historical Dividend Interest Rate
2012201320142015201620172018201920202021
5.85%5.60%5.60%5.60%5.45%5.00%4.90%5.00%5.00%5.50%

Benefits of Whole Life Insurance

There are plenty of times when whole life insurance makes a lot of sense. As we said earlier, the primary benefit of whole life insurance is that it never expires and builds cash value, but when does the extra cost make sense?

Who is a good fit for a whole life insurance policy? It all depends on your personal circumstances and goals. Generally, a whole life insurance policy can be a good bet for people who are:

  • Young and healthy
  • High-income earners
  • Looking for a tax-free savings account
  • Need for an effective estate planning strategy
  • Require permanent life insurance protection
  • Want an alternative option to supplement their retirement income

Whole life insurance can also be a good idea for people who have a lifelong dependant. For example, a term policy might not cover you for long enough if you have a child with a severe disability who will need care for the rest of their life.

Talk to an experienced life insurance agent if you’re unsure what type of life insurance policy is right for you. They can help you look through your finances, analyze your goals, and figure out the best fit for you and your family.

Drawbacks of Whole Life Insurance

Despite its many benefits, most people don’t need whole life insurance. Term insurance is much less expensive and can provide the same amount of coverage. Your loved ones will be just as protected without the added cost.

What about the cash value?

You might be thinking the cash value sounds worth the extra cost. For some people, it is. However, you should be aware that there are many other ways to save money.

Retirement accounts like 401ks and IRAs tend to grow much faster than the cash value of a whole life insurance policy. So instead, buying a term policy would allow you to make larger contributions to a retirement account and accrue more money for the future. In fact, many financial gurus such a Dave Ramsey advise against purchasing a whole life insurance policy for this very reason.

Financial gurus like Dave Ramsey believe that if you’re willing to spend the cost of what it takes to purchase a whole life insurance policy, you’re better off buying term insurance and investing the difference in premium towards something that can yield a higher rate of return versus what that cash value account can of a whole life insurance policy.

Plus, with most whole life insurance plans, if you die without spending the cash value, the insurance company only pays your beneficiary the death benefit. This is because the insurance company absorbs the cash value as it is a living benefit feature and not a benefit that can be passed onto a beneficiary in most cases.

That said, the biggest drawback of whole life will always be the cost. It’s never a good idea to buy more coverage than you can afford. Missing premium payments will cause your policy to lapse. That means your family won’t have coverage if you die.

Lapsed policies are more common than you might think. In fact, among people who buy permanent life plans, 25 percent will see their policy lapse in the first three years.

That number goes up to 40 percent within ten years. The best way to avoid policy lapsing is to only buy a policy with premiums you can afford. Unfortunately, for many people, that takes whole life insurance policies off the table. Luckily, there are other options when it comes to coverage.

Alternatives to Whole Life Insurance

For most people, especially families with young children in the picture, the best alternative to whole life insurance is term life insurance. Term life insurance is simple coverage that is nowhere near as complex as whole life insurance.

While cash values, dividends, and permanent protection may sound great, most people want life insurance coverage that can provide their loved ones with financial security if they pass away at an affordable price.

A term insurance policy can do just that and at more than half the cost of a whole life insurance policy. Term insurance is pure death benefit protection. You choose a term length and a coverage amount, and if the policyholder passes away while the contract length is active, the insurance company pays out the full death benefit.

Ideally, the death benefit should be enough that surviving loved ones would be able to maintain their current standard of living if the policyholder were to pass away. Contract lengths can be between 10 and 30 years.

A few providers, such as Banner and Protective Life, offer a 40-year contract length for those looking to maximize the length of a term insurance policy without purchasing a permanent plan.

For many families, the available contract lengths of a term life policy offer enough time to cover financial needs until they no longer require financial protection.

For example, term insurance policies can protect you while you pay your mortgage, while your kids are at home, until you retire, or all three. Once the term ends, many people can switch to a smaller term policy or even a final expense insurance policy

Term policies allow you to buy large amounts of coverage without stretching your budget. You can get a million-dollar policy for a reasonable rate, especially if you’re young and healthy. Plus, you can add policy riders to term policies and get even more value out of them. So while there’s no cash value or dividends, term life policies are an excellent fit for most people.

Indexed Universal Life Insurance

Term life insurance is not the only alternative to whole life insurance. For example, suppose you like the idea of permanent coverage and cash value accumulation but would like to see an option that does not cost as much as whole life insurance. In that case, indexed universal life policies might be an excellent option to take a look at.

Indexed universal life policies, or IUL for short, is a newer form of cash value life insurance. It falls in the category of permanent life insurance as a type of universal life insurance. Both whole life insurance and indexed universal life insurance share similar characteristics because the two life insurance options build cash value growth and offer permanent life insurance protection. 

However, the most significant difference between the two life insurance options is how the cash value grows. With whole life insurance, the cash growth is pretty much straightforward. You have the guaranteed cash growth that increases every new policy year, and then you have non-guaranteed growth, which would be your dividends if paid by the insurance provider.

With indexed universal life insurance, it’s a little more complex as there are a few different moving parts. For example, on an indexed universal life insurance plan, your cash value growth is based on a mix of both guaranteed and non-guaranteed interest rates. Non-guaranteed interest rates are based on the performance of popular stock market indexes such as the S&P 500, among many others.  

It is important to understand that with an indexed universal life insurance policy, at no time is your cash or premiums ever invested in the market. Instead, it is the performance of the market indexes in combination with a mathematical formula that determines an interest rate that your cash value is credited with each policy anniversary year.

If the market indexes perform highly, the interest rate will be greater up to a capped rate set by the insurance provider. On the flip side, if the market performs poorly, the indexed account has a floor where the cash value will grow at a minimum guaranteed interest rate.

Indexed universal life has become very popular, but there is a lot involved. So be on the look for our indexed universal life insurance guide launching on our website in early 2022. In the meantime, if you would like to learn more about indexed universal life insurance policies, be sure to reach out to us directly.

Guaranteed Universal Life Insurance

What if you want permanent coverage but don’t care about cash value growth? Is there a budget-friendly way to get coverage that doesn’t expire? Is there a middle ground?

Guaranteed universal life insurance policies are that middle ground. Guaranteed universal life policies allow you to get permanent coverage at a much lower cost.

This policy type doesn’t offer investment returns and builds very little cash value at all. So you’re not paying for the extras that are included in whole or indexed universal life policies. Instead, you’re just paying for the pure death benefit coverage on a permanent life insurance chasey.

Guaranteed universal life policies are more expensive than term policies but much less expensive than whole or indexed universal life policies. That makes guaranteed universal life policies the least costly way to get permanent coverage.

They’re an excellent option for people who don’t think a term policy provides enough coverage for their situation but don’t want a costly life policy.

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Frequently Asked Questions About Whole Life Insurance

This section is a list of frequently asked questions about whole life insurance coverage. If, for some reason, we missed answering a question you had specifically about whole life insurance or even a general question about life insurance, be sure to fill out the form located at the end of the FAQ. 

We will receive your question and respond promptly. Also, if we feel that your question will be beneficial to others, we will add it to the other questions within the FAQ section.

Is whole life insurance better than term life insurance?

The debate over term life insurance versus whole life insurance, and which one is better, has been one that has been around since the two options have been available. With a quick search on the internet, you will easily find hundreds of articles arguing that one is better than the other.

The thing is that it’s near impossible to say one is better than the other without learning about an individual’s needs and goals for life insurance coverage. When you have that information, it can shed light on deciding whether term or whole life insurance will be the better option.

While the two life insurance options are entirely different, they share a common feature in offering financial protection to your loved ones if you die.

So when choosing between a term life insurance policy or a whole life insurance policy, take the time to research the two coverage options. Learn about what each option offers and what they don’t offer. Most of all, be sure to ask for help from a licensed professional who has an open mind about both options.

If you’re torn on whether you should choose term insurance or whole life insurance, below is a chart outlining what the two life insurance options offer. Plus, we are always available to help and provide our unbiased opinion to help you choose which option would be best for you and your family.

Term Life Insurance

  • Temporary coverage based on contract lengths of 1, 5, 10, 15, 20, 25, 30, 35 or 40 years.
  • Available to applicants age 18-80.
  • Premium payments are fixed only during the contract length. After the contract expires rates will increase.
  • Can often be converted to permanent coverage once the contract length expires.
  • Provides death benefit coverage only.
  • Cannot receive dividends.
  • Variety of policy riders available.
  • An affordable life insurance option that is good for nearly everyone.

Whole Life Insurance

  • Permanent coverage based on a contract length that ends at a specific age of generally 100 or 121.
  • Available to applicants age 0-90.
  • Premium payments are fixed for the life of the contract.
  • Provides death benefit coverage and guaranteed cash value growth.
  • Participating plans are eligible to receive dividends.
  • Variety of policy riders available including long-term care.
  • A costly life insurance option good for people looking for lifetime protection with a cash value account that can be borrowed from. 

What's the difference between mutual companies and stock companies?

Mutual companies and stock companies pertain to how the ownership structure of the insurance company. When it comes to purchasing a whole life insurance policy, knowing how the company’s ownership is set up can be beneficial.

Ownership of an insurance company will be either be stocked owned or mutually owned. 

A stock-owned insurer is an insurance company that its shareholders own. Its main financial goal is to maximize profits to the company’s shareholders. When the insurance company is profitable, those profits are shared with its shareholders. Stock-owned insurers can pay out a dividend referred to as a stock dividend, but again it is only paid out to stockholders and not the policyholders.

A mutual insurer is owned by its policyholders. Therefore, its primary goal is to operate for the benefit of its policyholders. Since mutual insurers are owned by their policyholders, should the insurance company have a profitable year, those profits are then shared with its policyholders in the form of a dividend payment.

In many cases, choosing a company based on its ownership structure is often irrelevant, especially if you’re purchasing term insurance. The only time when it should come into selecting a provider is if you are looking for a whole life insurance policy that can offer the potential of paying out dividend payments. 

Only mutual insurance companies pay out dividends to policyholders. Keep in mind that dividends are not a guaranteed feature of whole life insurance. Even if a mutual insurance company has had a profitable year, those profits are not always guaranteed to be paid out to policyholders. Instead, the insurance company may reinvest the earnings into the company.

As mentioned, before settling on a whole life insurance provider, be sure to check out their historical dividend payments paid to its policyholders. This will give you a good idea of how consistently a provider has paid out a dividend to its policyholders each year.

Top 10 Largest Mutual Insurance Companies

  1. New York Life Group
  2. MassMutual
  3. Northwestern Mutual
  4. Thrivent Financial
  5. Guardian Life
  6. Securian Financial
  7. One America
  8. Penn Mutual
  9. Ameritas
  10. Assurity

The above mutual insurance companies are based on 2020 admitted assets and offer a participating whole life insurance policy.

Top 10 Largest Stock Owned Insurance Companies

  1. Aegon – Transamerica
  2. Nationwide
  3. Protective Life
  4. State Farm
  5. Fidelity Life
  6. Ohio National
  7. USAA
  8. Aetna
  9. Globe Life
  10. Cincinnati Life

The above stock-owned insurance companies are in ranking order based on 2020 admitted assets and offer a non-participating whole life insurance policy.

Is participating whole life insurance better than non-participating whole life insurance?

Just as when choosing a type of life insurance coverage, the same applies when choosing between a participating or non-participating whole life insurance policy. It all depends on personal insurance goals.

Non-participating whole life insurance is often best for individuals who would like the idea of whole life insurance but are looking for the most affordable option. Since non-participating whole life insurance does not pay dividends, it’s generally a cheaper option than a participating life insurance plan.

On the other hand, a participating whole life insurance plan will provide a much higher potential for cash value growth and is often the recommended choice for individuals looking for an authentic whole life insurance experience.

Do I have to pay taxes on dividends?

A dividend payment that has been paid to a policyholder in cash form is generally not taxable as they are viewed as a return of premium. So it’s being refunded a portion of a premium payment that you have already paid to the insurance company and therefore is free from being taxed by the IRS.

The only time when any portion of the cash value can become taxable is if the growth exceeds the total amount of premium payments paid into the life insurance coverage. Should that occur, the taxable amount is on any gains over the total premium amount paid.

Do I need to take a medical exam to apply for whole life insurance?

While the option for a no medical exam application has become increasingly popular amongst most life insurance providers, it tends to be an option primarily offered on most term life insurance plans.

With that said, you can still find the option to apply for life insurance without taking a medical exam on a few whole life insurance plans, especially from providers who offer non-participating whole life insurance coverage.

Do whole life insurance rates ever increase?

Once a whole life insurance policy has been purchased, the rates are permanently locked in and can never increase. This is one of the main reasons why it’s always best to buy whole life insurance in your younger years versus later in life. Rates will always be the cheapest the younger you are when applying for any life insurance coverage.

Can I use my cash value to pay my premiums?

Universal life insurance is the only life insurance coverage that allows the cash value account to pay premiums. If you skip a payment or forget to make a payment, the insurance company can automatically deduct it from the cash value account to save the policy from lapsing.

Whole life insurance, on the other hand, does not offer the same flexibility as universal life insurance. Due to the design and the guarantees that make up a whole life insurance policy, premium payments must be paid when due for the guarantees of the coverage to work.

While the insurance company may not be able to directly deduct premiums from the cash account of a whole life insurance policy, there are alternative methods that policyholders can take to access the cash account to pay their premiums.

For example, one approach is through the use of dividends. If your insurance provider pays out an annual dividend, you may have the option to elect that the dividend payment is used to pay for an upcoming premium.

The second option to utilize the cash account to make a premium payment is through a policy loan. If you request a loan from your cash account, you can use the money however you want, including paying premiums. Just keep in mind that policy loans accrue an annual interest charge, so it’s to pay back the outstanding loan balance as soon as possible.

The third option is to do a partial surrender. If you’re having trouble making premium payments, you can request a partial surrender reducing the death benefit while obtaining some of the policy’s cash value.

What is limited pay whole life insurance?

By design, whole life insurance offers a fixed premium payment that remains the same price throughout the entire length of the contract. The standard whole life insurance contract generally requires payment up to age 100.

However, with whole life insurance, many providers offer the option to shorten your payment duration under what is referred to as a limited pay plan. Limited pay whole life insurance durations will vary depending on the provider, but some of the more common durations include:

  • Single pay – all premiums paid in one lump sum payment
  • 10-pay – all premiums paid in the first ten policy years
  • 20-pay – all premiums paid in the first twenty policy years
  • Age 65 – all premiums paid by the time the insured reaches age 65

Choosing a shorter payment plan will result in higher premiums, but the benefit is faster cash value growth accumulation while reducing a lengthy payment duration.

What is paid up whole life insurance?

A paid-up whole life insurance policy means that all required premium payments have been made for the coverage requiring no further payments. In other words, the life insurance coverage is paid up in full.

A paid-up whole life insurance policy can occur in more than one way.

First, if you choose a limited pay option shortening the payments to, let’s say to 10 or 20 years, your life insurance policy would be paid up after your final payment had been made. That would leave you with a paid-up whole life insurance policy where you would have life coverage, with no further premiums required.

With a paid-up policy, your policy continues to grow in cash value, and if your provider pays dividends, you can still collect those as well.

A second option to receive a paid-up policy is utilizing dividends to purchase paid-up additions, otherwise known as PUAs for short. Paid-up additions allow you to use your dividend payment to buy extra death benefit coverage without going through any new underwriting.

Since the death benefit is considered paid up, it does not increase your premium payment. Therefore, you are increasing your death benefit and your cash value growth with the extra death benefit.

Does whole life insurance offer policy riders?

Policy riders are a common feature offered with most life insurance plans, including whole life insurance. A life insurance rider is an addition to your policy that provides additional coverage or extra benefits in addition to what the base coverage offers.

Life insurance riders may be offered as a free policy benefit that can make purchasing a company’s life insurance coverage more desirable than its competitors. Other riders will be available at an extra cost.

The exact riders available to you will depend on the company, but they are generally similar to those found on term life insurance policies.

When shopping for coverage, be sure to ask about the available policy riders. Many of today’s policy riders can be used to provide financial protection if you become sick or disabled, while others can provide extra financial security to your family.

Below are some of the common policy riders that you can get with whole life insurance:

Accelerated Death Benefit: This is generally a free policy rider often available on nearly all life insurance policies. The most common feature of the accelerated death benefit policy is that it can allow the policyholder early access to the death benefit should the policyholder become diagnosed with a terminal illness and have been given a life expectancy of 24 months or less to live. 

Accidental Death Benefit: Provides a second death benefit if the policyholder’s death directly resulted from an accident.

Chronic and Critical Illness: A popular living benefit feature that allows access to the death benefit if diagnosed with a chronic or critical illness.

Guaranteed Insurability: Gives the policy owner the right to purchase additional life insurance coverage without providing evidence of insurability. The option to buy additional coverage is based on certain life events occurring or on specific policy anniversary years.

Long Term Care: Provides access to the death benefit if a policyholder requires in-home or facility long-term care.

Term Insurance Rider: The policyholder can attach affordable term insurance coverage to the whole life insurance policy.

Waiver of Premium: If the policyholder becomes sick or disabled, the insurance company will waive all required premium payments until the insured is back to full health.

When shopping for a whole life insurance policy, be sure to ask what policy riders are included with the coverage and what riders are available at an extra cost.

Can seniors get a whole life insurance policy?

Some of the most popular senior life insurance plans are actually whole life insurance policies. Life insurance, referred to as burial insurance or final expense coverage, is commonly associated with non-participating whole life insurance.

These policies offer seniors smaller coverage amounts ranging from $1,000 to $25,000 in death benefit, making the life insurance policies ideal for covering funeral costs and other small end-of-life expenses that would otherwise be passed onto their loved ones to handle.

In addition, senior whole life insurance plans generally do not require a medical exam. Instead, these policies are offered under what is referred to as simplified underwriting. That means most decision-making for eligibility is based on responses to health questions listed within the application.

Plus, senior whole life insurance plans offer a guaranteed fixed premium that is good for the entire duration of the coverage and guaranteed cash value growth. And, because the death benefit amounts are smaller than traditional whole life insurance plans, the rates for coverage are highly affordable, especially for those living on a fixed income.

Now, seniors can also apply for participating whole life insurance plans as well. However, the minimum coverage amount on those plans tends to start at $25,000, often making them too pricey for seniors on a fixed income. Participating whole life insurance plans will also likely require a senior to complete a medical exam as part of the underwriting process.

Ask us a question

Do you have a whole life insurance question that wasn’t answered? Send it to us using the online form below so we can get to work on getting you a response.

The Bottom Line

Whole life insurance isn’t cheap. You’re paying to have coverage that lasts your entire life and for a built-in savings plan. For some people, the cost of whole life insurance makes sense. However, for most people, term policies are a much better choice. With a term policy, you can get a large amount of coverage without having to scratch your budget.

If you’re interested in a quote for term life insurance or whole life insurance, you’re in the rate place. At No Medical Exam Quotes, we can show you quotes from the best non medical exam companies.

With no medical exam company, all you have to do is fill out an application. There’s no need to take an exam and wait for the results to know if you’re covered. You can buy a policy from the comfort of your home.

To get started, fill out our quick form today.

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Jeffrey Manola - Life Insurance Expert

Jeffrey Manola - Life Insurance Expert

Jeffrey Manola is the founder of No Medical Exam Quotes, an online insurance broker with a strong focus on helping people shop for the perfect life insurance policy. Jeffrey is both a licensed life insurance expert and content creator for the website. Before becoming a licensed life insurance agent, he served in the United States Marine Corps. He transitioned from serving his country to helping families find affordable life insurance coverage since 2009. No Medical Exam Quotes is licensed to offer life insurance coverage in all 50 U.S. States.

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