What Is Whole Life Insurance?

Karen Y. Larkin
Cash Bundle

Unlike a term policy coverage, whole life insurance covers a person from the date it is issued until he or she dies. The person who chooses this type of coverage knows that he or she will continue to be covered as long as the premiums are paid and that the company cannot cancel coverage due to changes in the policyholder's health.

Insurance Providers

Always be careful to purchase life insurance, or any financial product, from a highly reputable company that will be there for the long haul. These are among the industry leaders for whole life insurance products.

MetLife

MetLife offers guaranteed acceptance for people between the ages of 45 and 75. The company doesn't ask any health questions, nor does it require a medical examination. The face value of the policy ranges from $2,500 to $20,000. MetLife has an A- rating from the Better Business Bureau and an A+ rating from A.M. Best.

Northwestern Mutual

Northwestern Mutual earned top ratings from ConsumerSearch. They cite high levels of customer satisfaction, a good report card from the National Association of Insurance Commissioners, an A+ rating with the Better Business Bureau, and strong financial ratings.

State Farm

State Farm offers a variety of whole life coverage options, including a single premium option. Customers also enjoy the benefit of having a personal agent, and prices are highly competitive. State Farm is a financially stable company, ranking 43rd on the Fortune 500 list, and holding $14 billion in assets.

New York Life

New York Life offers several feature-rich highly customizable whole life policy options. These include a living benefits rider, survivorship coverage, the ability to pay premiums with dividends, and a single pay option. New York Life enjoys an A++ rating from the A.M. Best and is a Fortune 100 company.

Start your search with these reliable companies, but be sure to compare offerings from other life insurance providers to make sure you find a policy that is suitable for your specific needs.

Advantages of Whole Life Insurance

A whole life plan offers several potential benefits to policyholders.

Savings Component

When a policyholder makes his or her premium payments, part of the money received is used to pay for the insurance coverage itself. A certain portion of the funds is invested in a cash account on the policyholder's behalf. The money in the fund grows on a tax-deferred basis until it is withdrawn.

The cash value of the plan can be withdrawn by the policyholder during his or her lifetime to pay for unexpected expenses or to supplement other forms of retirement income. The money held in the cash account can also be used as collateral for a loan.

Before the policyholder decides to cash out a whole life policy, he or she should consider the tax implications of doing so.

Level Death Benefit

The policyholder knows from the outset how much insurance he or she has in place and what the named beneficiary will receive. This amount does not fluctuate with changes in the value of the premium payments, which are invested by the insurer.

Permanent Coverage

Another advantage of choosing whole life insurance is that the policyholder continues to be covered even if his or her health changes. As a person ages, the likelihood of developing a health condition, such as diabetes, cancer, and heart disease increases, which may make it difficult to get life insurance coverage. With this type of policy, the insured has coverage in place even if a serious medical condition develops.

Types of Whole Life Plans

Consumers have several choices within a whole life insurance plan. The traditional policy provides a minimum rate of return on the funds invested in the cash account, which means that the policyholder can project how much the cash value will be worth in the future.

Interest-Sensitive

Another option available to policyholders is an interest-sensitive plan. With this type of insurance policy, the rate of return on the investment varies. The advantage to choosing an interest-sensitive policy is that the insured may be able to increase the death benefit without having to pay higher premium rates, depending on how well his or her investments perform. This option is a riskier choice than the traditional policy.

Single Premium

Whole life policyholders can also choose a plan where a single premium payment is made. This is a viable choice for a person who has a substantial amount of cash on hand and who wants to buy a policy with a cash value.

Life Insurance as an Investment

The investment portion of a whole life insurance policy should be considered as a side benefit, as opposed to the main reason for buying a policy. Other investment options will likely provide a higher rate of return and this should not be the main reason for buying this type of coverage.

A whole life insurance plan offers the advantage of providing permanent coverage, but it is a much more expensive type of policy than a term life one. Premiums remain at a stable level as long as the policy is in force, which makes it easy for a policyholder to budget for this expense.

Choosing a life insurance plan is something that should be considered very carefully. Consulting a licensed agent can help an individual find the right plan for his or her needs.

Disadvantages of Whole Life Insurance

For all their features and benefits, not everyone is sold on whole life insurance policies. For example:

  • Certified Financial Planner Neal Frankle strongly recommends term over whole life coverage. He cautions that life insurance is a tool rather than an investment vehicle, and that term allows for more coverage during critical years at a lesser price. He further asserts that agents selling whole life plans may have a conflict of interest, because whole life pays heftier commissions.
  • In his Forbes article Term Vs. Perm Tim Maurer echoes Frankle's sentiments, claiming that whole life policies are oversold and not a good value for most consumers.

Protect Your Loved Ones

If you have a loved one who needs financial protection in the event of your death, or if you want to endow a non-profit or other organization, a life insurance policy is a good idea. If the financial tools that come with whole life policies are useful to you, and they aren't more cost-effective elsewhere, take advantage of them. Just remember that whether you go with term, whole life, or a hybrid policy, the chief consideration is to secure the futures of those you love.

What Is Whole Life Insurance?