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Types of Life Insurance
Types of Life Insurance Overview
Permanent Life Insurance
Universal Life Insurance
Variable Life Insurance
Final Expense Life Insurance
Other Types of Life Insurance
Term Life Insurance
Term Life Insurance
Term Life Insurance Rates
Level Term Life Insurance
Decreasing Term Insurance
Group Term Life Insurance
Annual Renewable Term Life Insurance
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Whole Life Insurance
Whole Life Insurance
Whole Life Insurance Rates
Converting a Term Life Policy to a Whole Life Policy
Whole vs universal vs guaranteed universal insurance
Term vs. Whole Life Insurance
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No Medical Exam Life Insurance
Accelerated Underwriting life insurance
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A life insurance policy that lasts your whole life and includes a cash value component.
Whole life insurance is a type of permanent life insurance that has a savings component called the cash value
The cash value of a whole life insurance policy is guaranteed, and grows at a generally low rate
Whole life insurance is five to 15 times more expensive than term life insurance; 45% of policyholders abandon their policy within the first 10 years
You probably already know you may need some form of life insurance to protect your loved ones financially. What you may not know is how all of these different life insurance policies compare. A lot of terms get thrown around and it’s hard to keep up.
Like all life insurance products, whole life is designed to provide financial protection for people or organizations you care about in the event of your death.
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There are four major parts of a whole life policy:
The death benefit is a tax-free chunk of cash paid out by the life insurance company if you die. For example, let’s say you buy a whole life insurance policy with $500,000 in coverage. That $500,000 is the death benefit.
A beneficiary is the person or people that receive the death benefit. Beneficiaries can be your spouse, your kids, a trust, a business partner, a friend, a non-profit organization and other legal relationships and organizations.
Your premiums are how you pay for your life insurance policy. You usually pay monthly or annually.
The cash value is one of the main reasons to get a whole life insurance policy and functions as an investment vehicle. It accrues interest over time and can be accessed while you’re alive.
Whole life insurance lasts for your whole life — as long as you keep paying the insurance premiums. That means if you buy it when you’re 30 and keep paying your premiums until you die at 85, your family will receive the death benefit.
|FEATURES||WHOLE LIFE INSURANCE OVERVIEW|
|Average Cost||5-15x more than term|
|Guaranteed Death Benefit?||Yes|
|Guaranteed Cash Value?||Yes|
|How Cash Value Grows||Earns interest at a rate determined by your carrier|
|Notes||No risk compared to other permanent types, but you may find better investment options elsewhere|
When you pay your life insurance premium, a certain percentage goes into a tax-deferred savings component, known as the cash value of the policy.
The cash value of your policy earns interest and grows tax-deferred over time, at a rate determined by your individual policy. The growth rate is generally on the low end compared to other investments because life insurance companies have additional expenses (like policy administration expenses, underwriting costs, and death benefit payouts) that a pure asset manager does not.
Whole life insurance is a traditional type of permanent life insurance that pays out guaranteed dividends. Permanent life insurance has multiple iterations that allow for the policy to cater to your specific insurance and investment needs.
The biggest difference between term life insurance and whole life insurance is that term life insurance ends after a set number of years; it offers a death benefit and nothing more. Permanent policies like whole life insurance, on the other hand, cost more because they build cash value.
Since whole life insurance is guaranteed to pay out eventually, it is much more expensive and more complicated than term life insurance. Most permanent life insurance policies, like whole life, are at least five to 15 times more expensive than term life.
Most people don’t need a whole life insurance policy. Term life insurance generally offers the same amount of life insurance coverage at a more affordable price, while traditional investment vehicles usually yield higher returns than a whole life insurance policy. But if you have lifelong dependents or you’ve maxed out other investment accounts, then you might need a whole life insurance policy. Because whole life insurance coverage lasts your entire life, it’s the right policy type for anyone who can’t run the risk of their policy expiring. And if you’re a high-income earner, whole life insurance can be incorporated into your financial strategy as a supplement to other investments.
Overall, life insurance costs are determined by:
"On average, permanent coverage can be five to 15 times more expensive than a term policy with the same benefit amount. This range can vary based on the length of the term you are comparing and the type of permanent product and features within that product,” says Patrick Hanzel, Advanced Planning Specialist and Certified Financial Planner at Policygenius. "For example, some permanent products can have additional benefits like cash value accumulation and a growing death benefit. Others can be lower in cost but not include similar benefits."
|LIFE INSURANCE COVERAGE AMOUNT||MONTHLY PAYMENT||ANNUAL PAYMENT|
|$100,000||$89/ mo||$1,030/ year|
|$250,000||$212/ mo||$2,440/ year|
|$500,000||$420/ mo||$4,800/ year|
|$1,000,000||$827/ mo||$9,510/ year|
Methodology: Sample based on lowest cost average from top carriers for a 30-year-old male in highest health classification in the New Jersey area. Life insurance quotes based on policies offered by Policygenius in September 2020 from our partner whole life insurance companies: AIG, Guardian Insurance, MassMutual, and Mutual of Omaha.
Many people overestimate their ability to pay the large premiums year after year. Approximately 30% of whole life insurance policies are surrendered within the first three years and 45% are surrendered within the first ten years, according to a study by LIMRA and the Society of Actuaries (SOA).
Some permanent products can have additional benefits like cash value accumulation and a growing death benefit. Others can be lower in cost but not include similar benefits.
Like all life insurance policies, whole life insurance comes with its own set of benefits and drawbacks that are worth considering when you’re purchasing a life insurance policy.
|PROS OF WHOLE LIFE INSURANCE||CONS OF WHOLE LIFE INSURANCE|
|Life insurance coverage lasts your entire life||Coverage is expensive — five to 15 times more than term life insurance|
|Your policy can accrue interest through the cash value||Withdrawing from the cash value incurs high administrative fees|
|The cash value has a guaranteed rate of return||Dedicated investment options provide a higher rate of return|
There are multiple types of whole life insurance policies, and the one you want will depend on your individual needs. Most of the top life insurance companies offer some sort of whole life insurance, though the type of whole life insurance policy you can get varies for each insurer. You'll want to work with an agent to determine the right life insurance company for your individual needs.
Those looking for traditional whole life insurance policies will likely be able to find one through MassMutual and Guardian Insurance. But if you're just looking to cover end of life expenses, such as funeral costs, then you'll want to explore your options with AIG or Mutual of Omaha.
And if you're looking for universal life insurance, a type of whole life insurance, look no further than any insurer that partners with Policygenius.
Before you get a whole life insurance policy, you should make sure permanent coverage is in line with your needs. Most people are better off with term life insurance — it's exponentially cheaper for the same amount of coverage. But if your circumstance warrants a whole life insurance policy (perhaps because you have a high-net-worth or permanent life insurance needs), then you'll undergo the typical underwriting process to get a traditional whole life insurance policy, which includes an initial phone interview with a Poligygenius and a medical exam conducted by the insurer.
If you're opting in for final expense insurance, which offers much less coverage, then the application process is a little more cut and dry: you'll talk through your needs with the life insurance agent and pay your first premium, putting your coverage in force.
Many major insurance companies, like AIG, Mutual of Omaha, and Transamerica offer types of whole life insurance. While insurance companies are the ones who offer whole life insurance policies, you shouldn’t try to buy them directly from the companies. Instead, you should go through an independent agent or broker like Policygenius, who can help you compare whole life insurance policies from a variety of companies. This advice is the same if you’re looking for term life insurance as well.
Speaking to a Policygenius agent is the best way to determine if the high cost of whole life insurance is worthwhile depending on your individual needs. Policygenius agents make no commission and aren't incentivized to promote specific life insurance policies. Instead, they qualify your background to determine what type of policy and coverage best suits you — and where you can get it at the lowest price point.
Alongside that, they're with you every step of the way to ensure a seamless underwriting process and financial protection for the people you love.
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Short answer: only if you have circumstances that would require it. While many agents, brokers, and insurers argue in favor of permanent life insurance policies like whole life insurance, these products do have their critics, including popular financial personalities like Dave Ramsey, Suze Orman, and Clark Howard.
Whole life insurance products and services, however, are useful for some people. For those with high incomes who have already maxed out their other tax-deferred accounts, whole life insurance can be a useful part of managing your estate. And if you have a special needs dependent who will need care after you are gone, whole life is a good option.
But for the vast majority of people — and especially the 45% who surrender whole life insurance policies within the first 10 years — a term life insurance policy is the better option. You’ll get more coverage at a cheaper rate than you would with whole life insurance, making it more affordable for the decades that you’ll be paying premiums.
It’s also a good idea to avoid combining insurance and investment or savings. Insurance is not an investment, and shouldn’t be treated as an investment vehicle. If you’re trying to put together a long-term financial strategy, get expert help from a financial adviser or tax expert. They can help you structure your finances in such a way that you pay the least amount of tax and have a high growth rate.
Whole life insurance policies offer permanent life insurance coverage and can accrue interest over time with a cash value component. The cash value can be used as an additional investment vehicle and can be accessed while you’re alive, though sometimes with a penalty.
Term life insurance coverage lasts for a set period of time, between 10 and 30 years, while whole life insurance coverage lasts your entire life. Because whole life insurance lasts longer, it’s also five to 15 times more expensive than term life insurance and 45% of policies are abandoned within the first 10 years.
If you’re in a high tax bracket and have maxed out other investment options, such as your 401(k) or Roth IRA, whole life insurance policies can build additional untaxed wealth. But most of the time, whole life insurance shouldn’t be a part of your savings strategy because of how much you’ll spend just to keep the policy in force.
Whole life insurance policies are highly customized to the policyholder and there is no one price point for coverage. The premiums for a whole life insurance policy are based on each individual’s life insurance needs, but they tend to be costly and altogether unaffordable.
About the author
Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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