Whole life insurance is a policy that builds cash value and that offers many guarantees. It's a simple way to buy a policy that will last your entire life. It's also an expensive way to buy life insurance because of all the guarantees within the policy.
Features of whole life insurance
|Premiums don't change||There are no surprises with payments.|
|The policy builds cash value||A portion of your premiums goes into this account. You can take a loan against this amount or withdraw cash.|
|The investment return on cash value is guaranteed||Your policy illustration will show you how much your cash value will be worth in the future.|
|The death benefit is guaranteed||The amount your beneficiaries will receive is guaranteed. But note that the death benefit is typically the face amount of the policy, not the face amount plus the cash value.|
Whole life insurance rates 2018
For a $250,000 policy, whole life insurance costs at least nine times more than a 30-year term life policy. The difference is because whole life offers cash value and a death benefit to your beneficiaries no matter when you die. Term life has no cash value and it's possible you could outlive the policy.
Comparison: Annual costs of a $250,000 life insurance policy
|Gender and age||30-year term life||Whole life|
|Male age 30||$277||$2,477|
|Male age 40||$354||$3,671|
|Female age 30||$238||$2,227|
|Female age 40||$293||$3,242|
|Source: EverQuote research. We average the three cheapest rates found for term the two cheapest rates found for whole life. Rates are for men and women of average height and weight, in very good health. Your own rates will be different.|
If you're looking for a large policy amount, you may find whole life prices to be prohibitive. For a $1 million whole life policy for 30-year-old men and women we found rates around $10,000 a year.
More: Life insurance rates
Level premiums: "Level premium" whole life policies require payment as long as the insured person is alive.
Limited pay policies: Some companies, such as State Farm and New York Life, offer whole life with "limited pay," meaning your premiums can be condensed into a specified period of time, such as 10 years, rather than stretched out. This can be useful if you want to confine payments to your working years, for example.
Single-premium policies: And some insurers offer "single premium" policies that require one large up-front payment.
Paid up life insurance: You may have heard of "paid up" whole life insurance. It means that you're no longer paying premiums but the life insurance is in force. Not all policies can be paid up. To get a paid up policy you might be able to:
- Stop paying premiums and let the life insurer use the cash value to keep the policy in force. The death benefit will be reduced by the amount of cash value used up.
- Convert your policy to a smaller one and have the insurer use the difference to consider the new policy paid up.
Getting cheaper life insurance
- Consider term life: The cheapest way to buy life insurance is to get term life insurance. But term life policies have specific end dates, and you might live past the term.
- Consider universal life: If you're looking for a cheaper way to buy life insurance that will last your entire life, consider universal life insurance -- although you won't get all the guarantees of whole life. The premiums and/or death benefit can vary within many universal life policies.
- Don't wait to buy. Your life insurance quotes will go up every year. And your health could change, meaning higher rates.
- Compare rates: The best way to get a good deal is to compare rates from a few companies, no matter what kind of policy you choose.
Whole life insurance rates vary based on the type of "underwriting" you choose. Here's a summary:
- Fully underwritten whole life: Rates for this type of policy are based on your age, gender and medical conditions. Your insurer may want you to do a life insurance medical exam. But if you're healthy or only have a few health issues, it will generally be the cheapest way to buy life insurance.
- Simplified issue whole life: This application asks a few medical questions but does not require an exam. Because the insurer has less medical information about you, prices are higher than a fully underwritten policy. If you answer "yes" to a question you'll be declined. Questions vary by insurance company but can include things like "Do you currently reside in a nursing home?" or "Do you have AIDS or HIV?"
- Guaranteed issue whole life insurance: There is no exam and no medical questions for guaranteed issue life insurance. It is the most expensive way to buy a policy. But if you have a severe medical condition, it might be your only choice for securing life insurance.
Who needs whole life insurance?
Whole life insurance is for people who have a long-term financial obligation that can't be covered by term life insurance. For example:
- You have a special needs child who needs lifelong financial support
- You want to provide money for the cost of a funeral and final expenses, such as possible medical costs
- You want to provide an inheritance and won't have the savings for it
- You have a family business and want to provide funds to keep it going, no matter when you die
Things to know before buying whole life insurance
|Will term life insurance accomplish your goals?||Term life insurance is a far less expensive way to secure a policy. If your life insurance needs center on financial obligations like a mortgage or the years until a child graduates college, term life is probably a better fit.|
|Know how fast your cash value will build||Your cash value might build extremely slowly while much of your premium goes toward fees.|
|Know your guaranteed investment return on the cash value||Compare that to investment returns you might make if you bought term life insurance and invested the difference instead.|
|Understand surrender fees||If you find you can't afford the whole life policy -- or simply don't want it anymore -- you can cancel the policy and take the "surrender value." This amount is typically the cash value minus any surrender fees. Know what the surrender fees will be.|
|Know the interest rate if you take a loan against cash value||You can access your cash value by taking a loan against it. Know the interest rate. Unpaid loans will be deducted from the death benefit when you die.|
|Know if you're eligible for dividends||Some life insurance companies give a portion of profits to policyholders in the form of dividends. Find out if your policy is a "participating" policy that can get dividends. Dividends are never guaranteed. But if you get them, generally you can use the money toward premiums, take it as cash or use it to buy more insurance.|
|Understand guarantees vs. projections in the policy illustration||Your policy illustration will likely show guaranteed and projected cash values and death benefits based on your dividend options. Remember that only the guaranteed values are a sure thing.|
Other ways to get lifelong insurance
Whole life isn't the only policy type that lasts an entire life. Other forms of "permanent life insurance" are:
- Guaranteed universal life insurance
- Indexed universal life insurance
- Variable life and variable universal life insurance
- Survivorship life insurance (also known as second-to-die life insurance)
Sellers of whole life insurance
You'll have plenty of options if you're buying whole life insurance. Most major life insurers and many small companies sell it. However, not all life insurance companies that sell whole life offer small policies, such as policies under $100,000. And conversely, not all sellers of whole life offer large policies. For example, Colonial Penn sells no-exam whole life insurance but not in amounts over $50,000.
Select a company with a strong financial strength from A.M. Best or Standard and Poor's, rated A- or higher. Life insurers often show their ratings on their websites, or ask your agent what the company's financial strength ratings are.