Whole life insurance is more expensive and more complicated than term life insurance, so it’s not right for everyone. (If you’re new to life insurance or are undecided on what type to buy, I recommend reading these articles first: Who Needs Whole Life Insurance Coverage? and Term Life Insurance: The Basics.) Whole life insurance rates.
Personally, I carry term life insurance, and after thoroughly researching whole life insurance, I feel that I have the right product for my situation. But the ability to accumulate cash value that can be borrowed against and the opportunity to earn dividends might make whole life insurance the right choice for you, particularly if you’re a high earner interested in using the policy as an investment vehicle, or if your age or health prevent you from qualifying for a term policy.
My top picks for whole life insurance are Guardian, MassMutual, Northwestern Mutual, and State Farm — they all sell and underwrite their own whole life policies, have great financial strength ratings and few customer complaints, and have a long history of paying dividends on their policies. These companies will be the best options for most, but life insurance is personal. To find the best policy for you, you’ll need to get a number of quotes to see what you qualify for and what you can afford. The quote tool below lets you compare rates among companies that offer both term and whole life options in your area.
The Simple Dollar’s Top Picks for Best Whole Life Insurance
For honorable mentions, we have New York Life, Ohio National, and Western and Southern. These are also solid choices, but they do not make their annual dividend payment percentage histories available online, nor did they provide them upon request. Make sure you get this information from an agent if you apply for a policy with one of these companies.
How I Found The Best Whole Life Insurance
I spent more than 20 hours reviewing whole life insurance companies’ websites, narrowing down the best options, gathering information directly from insurance company representatives, and collecting insights from life insurance experts. I wanted to find out how to evaluate providers and policies, which riders to buy and why, how to cancel or withdraw money from a policy, and the consequences of doing so.
I limited my search to companies that sell policies in at least 40 states, since our readers live all over the country, and I wanted to recommend companies that most people can access. (You can find out whether an insurer issues whole life policies in your state at the insurance company’s website, through your state department of insurance, or by searching for an insurance company on the National Association of Insurance Commissioners (NAIC) website. )
I only looked at whole life insurance policies and did not evaluate “guaranteed issue whole life insurance policies” (sometimes called simplified issue, final expense, or burial insurance) because they typically are limited to small dollar amounts of $5,000–$25,000, they don’t offer very much coverage for the premium, and there’s a waiting period of two to three years. During this time, these policies may not pay a death benefit, but may instead return 100%–110% of the premiums paid (called a graded death benefit). If you can’t qualify for a medically underwritten policy, these policies might be right for you. Most of my top picks don’t sell guaranteed issue policies, but two do:
MassMutual offers guaranteed acceptance whole life for $2,000–$20,000 for consumers ages 50–75.
State Farm offers final expense insurance for $10,000 to consumers ages 50–80.
I also excluded companies with membership requirements like USAA, which is open to US military members and certain immediate family members. If you meet a provider’s membership requirements, you can use the criteria explained in this article to decide if it is worth getting a quote.
I narrowed it down to five key characteristics to look for when evaluating a whole life insurance provider. My top picks were the top all-around providers based on this criteria.
The best companies for whole life insurance (and all of my top picks) share five characteristics.
1. They sell whole life insurance policies and underwrite those policies themselves.
Not all life insurance companies sell whole life; some only sell term or term and universal. And not all companies are financially responsible for the policies they sell.
We prefer companies that are financially responsible for their own policies rather than companies that act as middlemen, because consumers may have a simpler time filing a claim and getting it paid from a company that underwrites its own policies.
2. They’re financially strong.
You want your whole life provider to have top financial strength ratings because you want it to be able to pay a claim to your beneficiaries and because there are limits on consumer protections if your insurer goes bankrupt. Each state has a guaranty association that backs up policies sold in that state, but death benefit coverage is limited to $300,000 per company in most states and only $100,000 of a policy’s cash surrender value is typically protected.
Reasonable life insurance rates
Furthermore, according to Richard Sabo, a financial planner and former insurance agent who became an industry whistleblower in the 1990s, policies from fraternal benefit societies such as Thrivent Financial may not be covered by a state’s guaranty association (for example, they aren’t covered in PA.).
My top picks all have financial strength ratings of an A- (“excellent”) or higher from A.M. Best and either one of the following: AA- (“very strong”) or higher from Standard and Poor’s, or Aa (“High Quality”) or higher from Moody’s.
3. They have minimal consumer complaints.
I examined the NAIC’s closed complaint ratio reports, which look at the number of confirmed complaints an insurance company receives relative to its market share. The NAIC’s complaint reports include only confirmed complaints, or ones where the state department of insurance has confirmed that the insurer made a mistake or violated a law or a term or condition of the insurance policy. All of our picks ranked far below the national median for complaints on individual life insurance policies in 2015.
4. Their policies are customizable.
The more options there are — in the amount of coverage or death benefit, the number of years you’ll pay premiums, and any additional benefits or riders — the more flexibility you have to design a policy that offers the coverage you want at a price you’re comfortable with.
Death benefits typically start at $25,000 and can go into the millions. Minimums and maximums vary by company, by policy, and by rate class, but any top company will offer a range.
You should have a variety of premium options; all else being equal, the fewer years you pay premiums, the higher your annual premiums will be.
Pay a single premium in a lump sum at the time you buy the policy
Pay the same annual premium every year for the rest of your life
Or, pay the same annual premium every year for a set number of years or up to a certain age (e.g., premiums for 20 years, premiums to age 65; that’s what those numbers in the policy names mean)
5. They pay dividends.
Many whole life policies are participating policies, which means that policyholders participate in the insurance company’s profits by receiving a dividend each year. While dividends are not guaranteed, Eric Palmer, chief marketing officer of Brokers Alliance, an independently owned distributor of life insurance cites dividend payment consistency as a sign of a good product and insurance company. My top picks all have a decades-long history of paying them every year and the rates are similar.
Whole Life Insurance Policy Dividends, 2006–2016
Note: Our honorable mentions, New York Life, State Farm, and Western and Southern, do not make their annual dividend payment percentage histories available online, nor did they provide them upon request. Make sure you get this information from an agent if you apply for a policy with one of these companies.
I didn’t evaluate policies by cost.
Everyone’s cost is going to be different because whole life insurance companies consider your age, health, and the policy size (dollar amount of death benefit) among other factors when determining your rate class. (Learn more in Best Life Insurance Rates in 2018.)
To get pricing information, you’ll need to shop around and get quotes, which you’ll have to do through an agent or broker, since you won’t find detailed online quote tools for whole life insurance.
It’s actually difficult to get any specific details on whole life insurance policies, or even what companies offer, without talking to an agent. Sabo suspects that because whole life is complicated and is one of the most expensive types of insurance up front, companies don’t want to scare consumers off without explaining the product’s benefits.
For most insurers I evaluated, I couldn’t find an online quote tool for whole life (only term). Instead, I was directed to get in touch with an agent for more information. Of our top picks, only State Farm has an online quote tool for whole life insurance. Even then, it’s only a rough estimate of price since it requires self-evaluating your health rating using the provided guidelines.
In reality, your health rating will be determined by a medical evaluation. According to Sabo, the insurer will determine what medical tests you need based on your age, health history, and policy size. Testing will be more extensive if you have had health problems in the past and/or if you’re applying for a larger policy — $1 million will require more testing than a $50,000 policy because the former is riskier for the insurer, he explained.
“Some companies are more favorable to certain health issues than others,” noted Steven Schwartz, vice president and practice leader of the executive benefits division at HUB International Northeast, a leading global insurance brokerage.
State Farm’s quote tool told me that for a 40-year-old male in Texas with a healthy weight, no tobacco use in the last three years, and good health, a policy with a $100,000 death benefit would cost $390 annually for a 30-year term policy and $1,749 annually for a whole life policy.
The good news is that whole life insurance premiums are guaranteed to be the same each year that you maintain your policy
In addition, the cost of a whole life insurance policy depends on whether the policy is focused on building cash value or maintaining low premiums, and these factors tend to be mutually exclusive, according to Schwartz.
“The best way to determine if a whole life policy is focused on building cash value versus a low premium whole life contract is to compare the contracts. The cash building contracts will have higher premiums and cash values and the point in the policy where the cash value is equal to the sum of the aggregate premiums paid is usually earlier in years than a low premium whole life policy,” he said. He recommends choosing a policy based on which of these attributes is more important to you. An independent financial advisor or insurance broker can help you find the best policy to fit your goals.
Be aware: Insurance agents earn large commissions on whole life insurance policies.
While I don’t doubt that there are honest whole life insurance agents who have their clients’ best interests in mind, insurance agents do earn large commissions from selling whole life insurance. As a result, you have to take what they tell you with a grain of salt and do your own research to make sure what they tell you is accurate.
“I would want my agent to show me different types of policies with different benefits so that I could make the decision on what was best for me,” Sabo said. “If an agent only presents a life insurance proposal with only one type of policy, you would have to wonder why he chose that one and didn’t make you aware of the other choices available and the positives and negatives of each.”
Another way to assess an agent’s integrity is to call different offices and request a whole life illustration for a certain amount and see if people at the same company show you the same illustration. (They should.)
You may want to buy these optional riders.
Riders are optional components you can add to a life insurance contract to increase your coverage. Most riders increase your premiums each year based on the size of your policy; a few charge fees only if you exercise them. The available riders depend on the specific policy you buy, its size, and your state of residence. You’ll find that insurers offer similar sets of riders, though the names, terms, and conditions vary.
A living benefit or long-term care rider is worth considering since most people will need some form of long-term care toward the end of their lives, Palmer said.“A living benefit rider will allow you to access the death benefit for home health care, assisted living, and nursing home [care],” Sabo said. “Some companies charge you for that rider and some build it into the death benefit, but then charge fees when you activate the rider.” The drawback is that when you use part of your policy’s benefits while you’re alive, your heirs will receive a lower payout when you die.
The waiver of premium rider allows you to stop paying your insurance premiums if you become totally disabled. According to Schwartz, it might be desirable if you don’t have adequate disability income insurance.
Some whole life policies have term riders that provide additional protection at a lower cost than the base whole life premiums.
Two other common riders to consider are riders that allow you to purchase additional insurance later based on your age and health at the time you applied and riders that will index your benefit to inflation.
You can cancel or borrow from your policy, but there are consequences.
A whole life policy’s cash value component increases each year with your premium payment and is an asset you can borrow against. This cash value is one reason why whole life costs more than term life. Another is that the policy is permanent, unlike a term policy which expires after a certain number of years, so the company is more likely to pay a benefit.
Whole life normally has low cash value in the beginning, Sabo said, because the insurance company keeps the bulk of the premiums in the early years to cover its costs of selling the policy, including your physical exam and the agent’s commission.
“In essence, if you pay $3,000 in the first year and you cancel the policy, you may only get $100 back,” Sabo said. It is a surrender charge in a sense, he explained, but whole life doesn’t normally have surrender charges, unlike a lot of other life insurance policies.
“Most companies allow the policy owner to borrow up to 90% of the net cash surrender value,” Schwartz said. “The funds should be received within one week.”
Shomari Hearn, a Certified Financial Planner and vice president with Palisades Hudson Financial Group in Fort Lauderdale, Fla., pointed out that you don’t have to repay the loan, though you will have to pay interest each year, and any unpaid loan balance will reduce the death benefit your beneficiaries receive. Sabo advises to at least pay the interest on any policy loan so it doesn’t compound. If you end up accumulating a large amount of cash value and don’t need to borrow against it, you can use the dividend cash value to pay your premiums going forward or your insurer may allow you to turn it into an additional death benefit; if you don’t, your heirs won’t inherit it, the insurance company will keep it. Your heirs will only receive the death benefit. (There’s more on this in Cash Value and Life Insurance: How to Pull Money Out of Your Policy.)
You can cancel your policy at any time, but the insurance company can’t. The insurance company may only cancel your policy if your loan indebtedness exceeds your policy’s cash value or if you don’t pay your premiums. (Your policy may provide for automatic premium loans, which means that if you don’t pay your premiums on time, the insurance company will automatically create a loan against your cash value to pay the premium and keep your policy in effect.)
Canceling your policy is called surrendering and gives you the policy’s cash surrender value. If you have any loans or premiums outstanding, those will be paid first.
If you still need insurance, canceling your policy may not be your best option because the premiums on a new policy will be based on your current age and health, which might mean higher premiums. Instead, it might make sense to keep the part of the death benefit that has already been paid up and discontinue paying additional premiums. You’ll need to arrange this with your insurer; don’t just stop paying your premiums or you could lose your coverage.
As an alternative to borrowing from or cashing out your policy, you could simply withdraw your policy’s dividends — withdrawing the dividends doesn’t reduce your death benefit and isn’t a loan so interest charges don’t accrue. And, unlike investment dividends in taxable accounts, the IRS doesn’t tax whole life insurance dividends. (Learn more in Earning Dividends Through Life Insurance.)
The Bottom Line
Whole life insurance isn’t for everyone: the premiums are several times more expensive for a given death benefit than the premiums for the same amount of term life insurance. Unlike term policies, the death benefit doesn’t expire at a certain age and whole policies build cash value that can be borrowed against or passed on to your heirs tax-free — but only if you always pay your premium.
If you’re a high earner who can afford the higher premium then whole life insurance might be for you. You’ll need to call for quotes and I recommend starting with Guardian, MassMutual, Northwestern Mutual, and State Farm. They’re all financially strong, have a long history of paying dividends, have few customer complaints, and sell and underwrite their own highly customizable whole life insurance policies.
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