Indexed whole life insurance

Indexed whole life insurance offers lifetime coverage and a cash value account that earns interest based on an investment index chosen by your provider.

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Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Published April 22, 2021|3 min read

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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.

Key Takeaways

  • Indexed whole life offers permanent insurance protection and a cash value feature that grows based on index fund performance

  • Your insurance provider sets your interest rate based on an index they choose

  • The premiums and death benefit stay level, unlike in indexed universal life insurance

  • Indexed whole life is an option for investment-focused shoppers who can afford the high premiums and have medium risk tolerance

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 premiums 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 $100,000 whole life insurance policy with three common payment timelines, purchased by a male with no significant health conditions:

20 $85.45           $66.00           $41.00             
30 $122.20          $89.00           $48.00             
40 $196.25          $136.00          $65.00             
50 Ineligible       $217.00          $95.00             

Methodology: Rates are calculated for a male non-smoker in Ohio who qualifies for a Preferred Plus rate class, obtaining a $100,000 whole life insurance policy payable until ages 65, 99, and 121. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 4/22/2021.

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 30-year-old male could pay $27.46 per month for a $500,000, 20-year term policy—five times more coverage than the sample whole life policy above at a fraction of the cost.

→ Learn more about whole life insurance rates

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Alternatives to indexed whole life insurance

The right type of life insurance for you depends on your family’s financial needs. Other policies will offer different investment options, more cash value flexibility, or greater simplicity than indexed whole life:

  • Term life insurance: Term life is the best type of policy for most insurance shoppers. It provides simple, affordable coverage while you have dependents and expires or can be easily canceled when you no longer need it. 

  • Traditional whole life insurance: If you need lifetime coverage for a permanent dependent, a standard whole life policy offers similar features and a cash value with less complexity and investment risk than indexed whole life.

  • Other types of permanent life insurance: You may prefer other types of cash value insurance if your main goal is investment growth. Policies like universal life or variable life insurance have the potential for greater gains but come with increased risk.

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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.

Indexed whole life insurance FAQ:

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.

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