Life insurance can help a family to maintain stability if the insured person passes away unexpectedly. Most adults, even couples who don’t have children, may be good candidates for life insurance. If you share household expenses that would be difficult to cover on one salary—particularly if you had to bear the cost of funeral expenses at the same time—life insurance could be a wise purchase.
Life insurance products are everywhere, and there are many formats to choose from if you are in the market for a life insurance policy. One of the most common types is called a “whole life” policy. Whole life insurance policies are also sometimes known as permanent life insurance.
Because each company considers so many different criteria when factoring whole life insurance rates, it’s important to gather a wide range of quotes so you can find the best policy for your needs.
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What Is Whole Life Insurance?
Whole life insurance is a form of permanent life insurance. That means that the person named in the policy is covered for as long as premiums are paid and the account is in good standing. (Term life insurance, on the other hand, only covers the insured person for a specific amount of time.)
Most whole life policies endow at age 100. When a policyholder outlives the policy, the insurance company may pay the full cash value to the policyholder (which, in this case, equals the coverage amount) and close the policy. Others grant an extension to the policyholder who continues paying premiums until they pass. Others still stop collecting premiums but keep the policy active until it’s needed.
Whole life insurance policies have a savings component in addition to a death benefit. After paying premiums for a designated period of time, the cash value of your policy begins to increase. Once there is a sufficient balance—this amount will likely be defined in the policy—you can borrow money from the account. In fact, policyholders can typically borrow from a life insurance policy as soon as there is enough cash value built up to take a loan in the amount needed. Depending on how your policy is structured, this can take several years to accrue.
Are There Different Types of Whole Life Insurance?
In addition to whole life policies, you can also find universal life, variable life, and variable-universal life insurance policies. All of these are forms of permanent life insurance.
Universal Life Insurance
With universal life insurance, you may have the option to increase the death benefit, and the interest rate paid on the account is a money-market rate. After accruing sufficient cash in the account, there is an option to modify your premium rate—offering holders some flexibility if their financial situation changes. Having a reduced premium will reduce the rate of accumulated savings, so it is possible to effectively use up the cash portion, which can cause the policy to lapse.
Variable Life Insurance
Variable life insurance provides policyholders with a wider range of investment options for the cash portion of the policy. Policyholders can invest cash accrued in the account in financial vehicles that offer a higher rate of return, including
- mutual funds
Be aware: With the potential for higher rates of return comes higher risk. If the stocks purchased decline in value, your death benefit and cash are reduced as well.
Variable-Universal Life Insurance
Variable-universal life insurance is a hybrid policy. Holders of this type of life insurance can adjust the death benefit and invest in a broader range of investment vehicles. Still, the same caveats that apply to universal and variable life insurance hold true here. It’s essential to carefully consider whether the risks are worth the flexibility and potential returns.
What Are the Benefits of Whole Life Insurance?
A typical whole life insurance policy offers three main benefits:
- You can borrow or withdraw funds from your account, which means it can act as a form of savings.
- The premiums are fixed and will not go up.
- The death benefit is guaranteed as long as you make your premium payments on time.
Whole life insurance offers the protection of life insurance to your family while also growing in value over time, and it never expires as long as you make your premium payments.
For most whole life insurance policies, premiums are fixed. That means you will pay the same premium amount for the policy for the entire time you have it or until it is paid up. A portion of the premium will fund the death benefit, while another portion will build up the cash value.
Even though premiums are divided between the death benefit and the cash value, they aren’t completely separate. This means that if you exercise the option to borrow money from your policy, the death benefit decreases until you pay back the loan.
For high-income individuals, there are also some financial planning benefits to a whole life insurance policy. It’s unlikely that beneficiaries will be required to pay federal income taxes on the original contributions to the death benefit they receive—but they may have to pay taxes on any interest that has been earned.
How Do I Get Quotes for Whole Life Insurance?
As with most forms of insurance, the amount you will pay in premiums depends on a number of factors, such as:
- how old you are
- how much coverage you are interested in purchasing
- whether you pay your premium annually or more frequently
Rates can also vary from one insurer to the next for a variety of reasons, such as how rates are calculated and how the insurance company weighs risk factors.
Your best bet is to shop around and get life insurance quotes from multiple insurance providers. By using our online tool, you can get quotes from various life insurance carriers in minutes. You also have the option of speaking with a life insurance expert who can help guide you through the process and choose the plan that best fits your needs.
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The Bottom Line
With so many different types of life insurance available, you still have a little work to do—even once you have determined that whole life insurance is the right type of policy for your needs.
It’s important to get a range of whole life insurance quotes from a number of insurers. Our online comparison tool will help you compare premium rates for whole life insurance, policy differences, and any limitations or restrictions on how you can access the cash portion of your policy.
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