Whole Life Insurance

Shawn Plummer

CEO, The Annuity Expert

What is Whole Life Insurance?

Whole life insurance is permanent life insurance with a savings component called Cash Value. The policy lasts as long as premiums are paid and grow at a guaranteed interest rate that the insurance company will determine.

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Whole Life Insurance Rates

Whole life insurance premiums, sometimes called straight life insurance, are typically fixed and do not adjust over time like universal life insurance. These are sample monthly premium rates based on age, gender, coverage amount, Preferred status, and non-tobacco consumers.

AgeGender$250k$500k$750k$1,000,000
25Female$108.50$211.75$315.00$418.25
Male$120.97$236.69$352.41$468.13
35Female$163.41$321.56$479.72$637.88
Male$179.16$353.06$526.97$700.88
45Female$255.72$506.19$756.66$1,007.13
Male$281.75$558.25$834.75$1,111.25
55Female$417.38$829.50$1,241.63$1.653.75
Male$462.66$920.06$1,377.47$1,834.88

Pros and Cons

Pros

  • The coverage is for an entire lifetime.
  • The policy is straightforward to understand.
  • Policy owners can earn a guaranteed fixed interest rate on their cash value.

Cons

  • The coverage is expensive.
  • Policyowners will pay higher fees.
  • The fixed interest rates can be low.

Is Whole Life Insurance A Bad Investment?

Unless you require permanent life insurance coverage, whole life insurance is usually a poor investment. If you’ve already used up all of your retirement accounts and have a diverse portfolio, whole life insurance may be a smart investment if you need lifelong coverage.

Consider that whole life insurance is expensive and takes many years to begin generating adequate investment returns. As a result, it’s usually only a viable option if you’re young, affluent, and wish to leave money to your relatives.

Why Whole Life Is Considered an Investment

When you pay whole life insurance premiums, some of the money goes to the cost of insurance and administrative fees. And the rest is put towards a “cash value.” This cash value can be used in many ways. For example, it could be used for retirement.

A cash value is like an investment account that you can use inside your life insurance policy. The money grows at a guaranteed rate over time. If you don’t make withdrawals, the cash value should equal the death benefit when you turn 100 years old.

A whole life insurance policy’s cash value accumulates tax-deferred, just like a 401(k) or IRA. Contributions to a whole life insurance policy are not tax-deductible.

Accessing Your Whole Life Insurance Policy’s Investment Gains

You can take out a loan where the insurer holds your money and gives you a loan with the cash value as collateral. Your cash value grows according to interest rates set in the policy. You don’t need to pay back this loan.

Policy Loans

You must pay interest on the loan, and it is added to your outstanding balance if you do not pay it off. If your financial value is insufficient, your policy expires, and you must pay taxes on the money. When you pass away, the outstanding amount will be taken from your beneficiaries’ death benefit.

Dividends

When you take life insurance, you can get your dividends in cash. However, you have to pay taxes on the amount if it is more than what you have paid in premiums.

Withdrawals

You can withdraw money from this policy. You will have to pay a fee, but you do not need to pay taxes on the money. That’s because you already paid for it with your premiums.

Sell The Policy

You can sell your insurance policy for an amount higher than its cash value but less than the death benefit. The buyer will take over paying the premium and become the beneficiary. Any gain from this sale will be

Canceling The Policy

If you no longer want to be covered, you can surrender your policy to the insurance company. It will give you the cash surrender value if you do this. However, the first ten or so years of your life insurance will have high fees for returning it, and this is one of the reasons that whole life insurance should not be considered a short-term investment.

Whole Life Insurance or Term Life Insurance?

Life insurance with a cash value aspect, such as whole life insurance, has an investment component as well as life insurance coverage. These policies’ primary aim is to pay out a death benefit to your beneficiaries when you pass away, and this benefit accounts for a substantial chunk of the cost of purchasing one.

That is why whole life insurance and other cash value life insurance plans are not a good investment unless one of your goals is to maintain coverage for the rest of your life.

Because you’re paying for permanent coverage, additional administrative expenses, and funding the investment account over a longer period of time, whole life insurance premiums are frequently ten times greater than term life insurance premiums.

Universal Life Insurance vs Whole Life Insurance

If you’re looking for whole life insurance but want more alternatives in terms of investment and rates, universal life insurance might be a better fit. With a few key distinctions, universal life insurance is very comparable to whole life insurance:

  • You may use the policy’s cash value to pay a portion or all of your premiums.
  • There are minimum and maximum premiums, but you can usually pay any amount that is acceptable.
  • Premium payments are not level and can increase.
  • You may invest your cash value in a number of ways.

Traditional universal life insurance (interest rates set by the insurer) is one option, indexed universal life insurance is another (allocates a stock market index), and variable universal life insurance is yet another alternative (mutual fund performance determines how much more money you’ll have).

A universal life insurance policy also has a fixed interest rate investment option, which, however, seldom pays out.

Traditional and indexed universal life insurance (IUL) is riskier and offers a greater return potential than whole life insurance. Your cash value in standard and indexed universal policies will generally have a set guaranteed yearly return, however, this can be minimal or zero.

Variable universal life insurance is a riskier choice. If you pick this, your money may go down and there are higher expenses. In addition, your investment options come with higher expenses than comparable mutual funds.

What Is Graded Whole Life Insurance?

A graded whole life insurance policy is one that pays a lower amount if you die within the first few years after purchasing an insurance policy. A graded benefit contract is one that pays a less amount if you die early in the term of coverage. Only after several years of coverage have passed does the death benefit rise to the original face value.

This is an approach utilized by life insurance providers to decrease the cost of policies for people who are considered unhealthier and might already be seeking guaranteed issue coverage. Graded benefits decrease the risk assumed by insurance companies that accept applications from terminally ill individuals.

What is Simplified Issue Whole?

Simplified whole life insurance is a type of whole life insurance. It lasts your entire life. It is for people 60 and older who have health problems that make them unable to get other types of whole life insurance.

If you apply for simplified life insurance, you will not have to go through a medical exam. You may have to conduct a phone interview and only answer some health questions on an application. Because the health evaluation is not as thorough, insurers set a higher premium with less coverage.

Without a medical check, the underwriter assumes that you will be too risky to insure. But some people can’t get insured because they have disqualifying conditions. If your age and health are good, you might not be able to get insurance.

Some simplified issued whole life accepts qualified funds such as an IRA as well.

A Cheaper Alternative

A cheaper alternative for consumers seeking primarily leaving a death benefit to beneficiaries, level term life insurance offers coverage at a fraction of the cost.

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Find The Best Life Insurance Coverage At The Cheapest Cost!

Compare life insurance quotes from 25 companies in seconds. Then, apply for coverage in less than 10 minutes.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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