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Some life insurance products offer investment opportunities, such as policies that increase in cash value over time. Whole life insurance is an option for a cash value life insurance policy. Whole life insurance policies guarantee the amount you will pay in premiums, guaranteed cash value gains, and a death benefit that will not change.
Related: Compare quotes from top rated life insurance companies with Policygenius
We evaluated whole life insurance options using data provided by Veralytic, an independent publisher of cash value life insurance price and performance research.
Strong points: AXA Equitable has an excellent track record of investment performance and has historically had more reliable policy illustrations than its competitors. You will also have better access to the cash value compared to other insurers.
Potential disadvantages: You may find better policy costs elsewhere, depending on factors such as your age, gender, health risk category, smoking, and your policy’s face amount. AXA’s financial strength and claims ability are currently inferior to other whole life competitors.
North West Mutual
Strong points: Northwestern Mutual has exceptional financial strength based on assets and more products with lower costs compared to its competitors. Lower internal costs can mean lower premiums or a higher cash value for you.
Potential disadvantages: Northwestern Mutual has an average return on its invested assets underlying policy cash values. Dividend deposit interest rates have fallen more than those of other competitors over the past 20 years.
Strong points: Ohio National has reliable policy illustrations and a good historical performance of the invested assets underlying the cash value. Compared to other whole life insurance companies, interest rates credited on dividends have performed better over the past 20 years.
Potential disadvantages: Overall cost competitiveness may be inconsistent, depending on your age, gender, health risk category, tobacco use, and face amount of your policy, so it’s worth comparing options from other insurers.
What is whole life insurance?
Whole life insurance can provide cover for life. It can be an interesting life insurance option because it contains various guarantees:
- A guaranteed minimum rate of return on the surrender value
- The promise that your premiums will not increase
- A guaranteed death benefit that won’t go down
You can access the cash value of your whole life policy through a policy loan or withdrawal. But the typical downside is that whole life insurance guarantees come at a price – it’s one of the more expensive ways to buy life insurance. Depending on your financial goals, universal life insurance may be a more cost effective option.
Like whole life insurance policies, universal life insurance can provide a cash value account and lifetime coverage. One major difference is that universal life insurance policies can allow you to adjust your premium payments, within certain limits. And there are types of universal life insurance that have the potential to increase cash value at a higher rate than whole life policies, albeit with more risk involved. The growth in cash value is linked to stock market indexes or investment funds in certain types of universal life insurance policies.
Maybe you only need life insurance for a specific period, such as the years until you retire. Term life insurance might be a better choice for you, although term life insurance does not offer cash value as part of the policy. But if you are only looking for life insurance coverage, with no cash value, term life insurance is usually available for terms of 5, 10, 15, 20 and 30 years, and even 35 and 40 years from a few companies.
Related: Best term life insurance companies of 2021
Who needs whole life insurance?
Whole life insurance may be right for you if:
- You have someone who will always be financially dependent on others, such as a child with special needs.
- You want to make sure your funeral expenses are covered regardless of when you die. If your policy is in force when you die, your beneficiaries will receive a death benefit. This payment can be used for funeral expenses, loss of family income, mortgage payments, school fees or any other need.
- You want life insurance that accumulates cash value that you can leverage through a policy loan or cash withdrawal.
- You are risk averse and want a policy with all the guarantees.
Tips for buying whole life insurance
Just like you would with any other type of insurance, you should carefully weigh your needs and your budget when purchasing whole life insurance. Here are some tips for getting whole life insurance:
- Understand the cost. The premium does not represent the actual cost of a whole life insurance policy. Rather, you want to take into account that the true “cost” of the policy is also what is subtracted from the premium for various expenses. These fees are usually deducted once a month. Examine the illustration of the policy to see how much your cash value will increase over time.
- View dividend history and the participation options of any whole life insurance policy you are considering.
- Examine the financial strength of the insurer. When you buy life insurance, you want the business to be in business for many decades and be able to pay claims over the long term. Companies such as AM Best provide financial strength ratings.
- Get quotes from several insurers. Rates between companies will vary and will be based on age, gender, medical history, and amount of coverage, among other factors. Each life insurer has their own way of pricing each claimant’s “risk” so it can pay off to shop around.
We evaluated life insurance companies that sell whole life insurance using data provided by Veralytic, an independent publisher specializing in research into the performance and pricing of life insurance products with cash value.
These five measures were used:
Financial strength and claims settlement capacity: This encompasses the insurance company’s financial strength ratings from four major rating agencies.
Historical performance: What is the quality of the investments that fuel the cash value gains? This measures the historical performance of the company’s investments compared to similar products.
Cost competitiveness: This measures the internal costs of a product, including the cost of insurance, fixed administration costs, packaging costs based on cash value, and premium charges.
Price stability: Does the pricing of the product appear adequate and reasonable, based on the insurer’s historical experience? This metric examines the cost of insurance, policy fees, and expected / illustrated rate of cash value gains.
Relative value of the strategy: What is the quality of access to monetary value? The more liquid the product, especially in the early years of insurance, the better. Some insurers charge more for greater liquidity, so beware of tradeoffs.
John Egan is a freelance writer, editor and content marketing strategist in Austin, Texas. His work has been published by Experian, Bankrate, National Real Estate Investor, US News & World Report, Urban Land magazine, and other media.