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Some life insurance products offer investment opportunities, like policies that have cash value that grows over time. Whole life insurance is one option for a cash value life insurance policy. Whole life insurance policies guarantee the amount you’ll pay in premiums, have guaranteed cash value gains and have a death benefit that won’t change.
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We evaluated whole life insurance options using data provided by Veralytic, an independent publisher of cash value life insurance pricing and performance research.
Highlights: AXA Equitable has an excellent investment performance track record and has historically had more reliable policy illustrations than its competitors. You’ll also have better access to cash value compared to other insurers.
Potential drawbacks: You might find better policy costs elsewhere, depending on factors such as your age, gender, health risk class, tobacco use and your policy’s face amount. AXA’s financial strength and claims-paying ability ratings are currently lower than other whole life insurance competitors.
Highlights: 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 higher cash value for you.
Potential drawbacks: Northwestern Mutual has an average performance of its invested assets underlying policy cash values. The dividend interest crediting rates have declined more than other competitors over the past 20 years.
Highlights: Ohio National has reliable policy illustrations and good historical performance of the invested assets underlying cash value. Compared to other whole life insurance companies, the dividend interest credited rates performed better over the past 20 years.
Potential drawbacks: Overall cost competitiveness can be inconsistent, depending on your age, gender, health risk class, tobacco use and your policy’s face amount, so it’s worth comparing options from other insurers.
What Is Whole Life Insurance?
Whole life insurance can provide lifelong coverage. It can be an attractive life insurance option because it contains a variety of guarantees:
A guaranteed minimum rate of return on the cash value
The promise that your premium payments won’t go up
A guaranteed death benefit that won’t go down
You can access the cash value within your whole life insurance policy through a policy loan or withdrawal. But the typical downside is that the guarantees of whole life insurance 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 lifelong coverage. One major difference is that universal life insurance policies may allow you to adjust your premium payments, within certain limits. And there are types of universal life insurance that have the potential to grow cash value at a higher rate than whole life policies, albeit with more risk involved. Cash value growth is tied to stock market indices or investment funds in certain types of universal life policies.
Maybe you only need life insurance only for a specific time period, such as the years until you retire. Term life insurance might be a better choice for you, although term life does not offer cash value within the policy. But if you’re looking only for life insurance coverage, without cash value, term life is commonly available in lengths of 5, 10, 15, 20 and 30 years, and even 35 and 40 years from a few companies.
Who Needs Whole Life Insurance?
Whole life insurance might be suitable for you if:
You have someone who will always be financially dependent on others, such as a child with special needs.
You want to ensure your funeral expenses are covered, regardless of when you die. If your policy is in force when you pass away, your beneficiaries will receive a death benefit. This payout can be used for funeral costs, a family’s loss of income, mortgage payments, college tuition or any other needs.
You want life insurance that accumulates cash value that you can tap into through a policy loan or cash withdrawal.
You are risk averse and want a policy with full guarantees.
Tips for Buying Whole Life Insurance
Just as you would with any other type of insurance, you should carefully weigh your needs and budget when shopping for whole life insurance. Here are tips for buying whole life insurance:
Understand the cost. The premium doesn’t represent the true cost of a whole life insurance policy. Rather, you want to take into account that the policy’s true “cost” is also what’s subtracted from the premium for various expenses. These costs typically are deducted once a month. Examine the policy illustration to see how much your cash value will grow over time.
Look at the dividend history and dividend options of any whole life insurance policy that you’re considering.
Review the financial strength of the insurer. When you’re buying life insurance, you want the company to stay in business for many decades and be able to pay claims far down the road. Companies such as A.M. Best provide financial strength ratings.
Get quotes from multiple insurers. Rates among companies will vary and be based on age, gender, medical history and coverage amount, among other factors. Each life insurer has its own way to price each applicant’s “risk,” so it can pay off to shop around.
We rated life insurance companies that sell whole life insurance using data provided by Veralytic, an independent publisher specializing in performance and pricing research of cash value life insurance products.
These five measurements were used:
Financial strength and claims paying ability: This encompasses the insurance company’s financial strength ratings from four major ratings agencies.
Historical performance: How good are the investments that fuel cash value gains? This measures the historical performance of the company’s investments compared to similar products.
Cost competitiveness: This measures a product’s internal charges, including the cost of insurance, fixed administration expenses, cash-value-based wrap-fees and premium loads.
Pricing stability: Does the product’s pricing appear to be adequate and reasonable, based on the insurer’s historical experience? This measure looks at the cost of insurance, policy expenses and the expected/illustrated earnings rate on cash value.
Relative policy value: How good is access to cash value? The more liquidity the product has, particularly in early policy years, the better. Some insurers charge more for greater liquidity, so beware of a tradeoff.
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, U.S. News & World Report, Urban Land magazine and other outlets.