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 which type to buy, consider reading these articles first: Who Needs Whole Life Insurance Coverage? and The Ultimate Guide to Choosing a Term Life Insurance Policy.)
Many people carry term life insurance because the cost makes it the right product for many situations. But the ability to accumulate cash value that can be borrowed against and the opportunity to earn dividends might make whole life insurance the better 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 prevents you from qualifying for a term policy.
Money360’s 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 ratings on financial strength, few customer complaints, and 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.
Find the Best Life Insurance
Enter your ZIP code below and be sure to click at least 2-3 companies to find the very best rate.
Money360’s Top Picks for Best Whole Life Insurance
- Northwestern Mutual
- State Farm
- New York Life
- Ohio National
- Western & Southern
- 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).
- Schwartz recommends choosing a policy based on which of these attributes is more important to you. An independent financial adviser or insurance broker can help you find the best policy to fit your goals.
How to Find the Best Whole Life Insurance for You
In this comparison, the search was limited to companies that sell policies in at least 40 states in order 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 (NAIC) website.)
This piece looks only at whole life insurance policies and does 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 to $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% to 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. Many of the 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.
The review also excludes companies with membership requirements like USAA, which is open to U.S. military personnel and certain immediate family members. If you meet a provider’s membership requirements, you can use the criteria explained in this article to decide whether it is worth getting a quote.
5 key characteristics were considered when evaluating a whole life insurance provider.
1. They sell whole life insurance and underwrite the policies themselves.
Not all life insurance companies sell whole life; some sell only term or term and universal. And not all companies are financially responsible for the policies they sell.
It is fiscally more expedient to go with companies that are financially responsible for their own policies rather than companies that act as middlemen, because it may be simpler for consumers to file a claim and get 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.
The 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.
The research for this piece examined the National Association of Insurance Commissioners’ (NAIC) 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 up to 2019.
4. Their policies can be customized.
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.
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. The top picks examined all have a decades-long history of paying them every year and the rates are similar.
Whole Life Insurance Policy Dividends, 2006–2019
|New York Life||6.79||6.79||6.79||6.14||6.11||6.11||6.15||5.80||5.90||6.00||6.20||6.20||6.20||6.00|
Note: Dividend payment percentage histories for honorable mentions State Farm and Western & Southern were not available. Make sure you get this information from an agent if you apply for a policy with either of these companies.
Policies weren’t evaluated 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 2019)
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. This may be because whole life is complicated and is one of the most expensive types of insurance upfront, companies don’t want to scare consumers off without explaining the product’s benefits.
For most insurers evaluated, there was no easily accessible online quote tool for whole life (only term). Instead, many sites will direct you 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. Typically, 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.
State Farm’s quote tool said that for a 40-year-old male in Pennsylvania with a healthy weight, no tobacco use in the past three years and “very good” health, a policy with a $250,000 death benefit would cost $1,768 annually for a 20-year term policy and $10,960 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.
“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,” says Steven Schwartz, a private financial consultant and former vice president and practice leader at HUB International Northeast, a leading global insurance brokerage. “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.”
Be aware: Insurance agents earn large commissions on whole life insurance policies.
While 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.
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. 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. 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.
Canceling or Borrowing From a Policy
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 a low cash value in the beginning 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.
Many whole life insurance policies let you borrow up to 90 percent of the value of the policy. 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. Agents advise 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 receive only the death benefit.
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.
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.