Whole life insurance provides lifelong life insurance protection to your family and a cash value component you can access while you’re alive. Indexed whole life insurance gains cash value based on an investment index chosen by your insurance company.
Indexed whole life is best for those who want a policy with tax-deferred investment growth and investments with a lower potential for volatility. It lacks the higher investment risk of other permanent life insurance plans but could still have greater returns than traditional whole life. Here’s how to decide whether indexed whole life is right for you.
What is indexed whole life insurance?
Indexed whole life insurance has the same features of a traditional whole life insurance policy, but differs in the way the cash value earns interest. Your policy will provide:
A death benefit for your beneficiaries
Level premiums
Lifelong life insurance protection
Tax-advantaged cash value account
Like whole life insurance, your insurance provider controls the interest rate of your indexed whole life insurance. However, in indexed whole life, your provider changes your interest rate based on the performance of a specific investment index (like the S&P 500).
Indexed whole life also differs from indexed universal life insurance, which has index-based cash value growth and also lets you use the cash value to adjust your death benefit and pay premiums.
→ Learn more about the different types of whole life insurance
Is indexed whole life insurance a good investment?
Indexed whole life insurance isn’t the best investment for most people. You may earn more interest than you would with a traditional whole life plan, but the rate of return on your cash value will still be lower than the return on a traditional investment account.
Your cash value will come with a guaranteed minimum rate of return set by your provider, but most providers also set a maximum rate of return for your earnings. Cash value accounts also come with fees that traditional accounts don’t.
Cash value investments are complex and require more management than most tax-advantaged investments. Consult a financial advisor if you’re interested in using life insurance to invest.
How much does indexed whole life insurance cost?
Indexed whole life insurance rates vary based on several factors, including:
Your age when you buy your policy
Death benefit amount
Gender
Health and medical history
Lifestyle risks like smoking
Payment timeline for your policy
Here are sample monthly premiums for a $500,000 whole life insurance policy paid over 99 years (one of the most common payment timelines):
Age | Sex | $250,000 | $500,000 | $1,000,000 |
|---|---|---|---|---|
25 | Female | $175.00 | $346.00 | $660.00 |
Male | $199.00 | $393.00 | $765.00 | |
35 | Female | $243.00 | $481.00 | $947.00 |
Male | $288.00 | $571.00 | $1,121.00 | |
45 | Female | $360.00 | $716.00 | $1,417.00 |
Male | $435.00 | $866.00 | $1,690.00 | |
55 | Female | $589.00 | $1,173.00 | $2,332.00 |
Male | $692.00 | $1,380.00 | $2,173.00 |
Methodology: Monthly rates are calculated for non-smokers in a Preferred health classification, obtaining a whole life insurance policy payable within 99 years from MassMutual. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 01/01/2024.
Because of the high premiums, whole life insurance isn’t right for most people. Term life insurance is significantly more affordable. For example, a healthy 35-year-old male could pay $29.97 per month for a $500,000, 20-year term policy — the same amount of coverage than the sample whole life policy above at a fraction of the cost.
→ Learn more about the average cost of life insurance
If you want to use life insurance as an investment vehicle but are wary of policies with higher investment risk, an indexed whole life insurance policy may be worth considering. However, most people will get the most value from buying a term life policy and investing separately. Work with an independent insurance agent or financial advisor to get the best coverage for your family.
Frequently asked questions
How does indexed whole life insurance work?
Indexed whole life pays a benefit to your loved ones when you die and comes with a savings-like cash value account that grows at an interest rate based on the performance of an index fund.
Is indexed whole life insurance a good way to save for retirement?
For most people, no. High costs and low returns mean you should only include life insurance in your savings plan if you regularly max out your other retirement accounts.
What are the pros and cons of indexed whole life insurance?
Indexed whole life is a relatively low-risk investment with guaranteed interest. But premiums are high and the potential for gains and flexibility is lower than other cash value policies.
