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The Best Whole Life Insurance for 2021
The 6 best life insurance companies of 2021
- Best Overall: Guardian
- Best for Financial Strength: MassMutual
- Best Customer Satisfaction: Northwestern Mutual
- Best for Customized Options: State Farm
- Most Affordable: New York Life
- Best for Military Members: USAA
The best life insurance companies at a glance
|Brand||Riders||Coverage Options||J.D. Power||SimpleScore|
|New York Life||13||Term|
What is a whole life insurance policy?
Whole life insurance is a life-long policy that leaves your beneficiaries a death benefit when you pass away. The policy may also come with a cash value feature. As you pay your premium, you’ll earn interest so that the value grows over time. You may even be able to borrow from your account, making it a savings vehicle in addition to a life insurance policy. Whole life insurance is a permanent policy, meaning that as long as you keep up with your premium payments, you’ll be able to keep your policy locked in place for as long as you live, including a fixed premium.
How whole life insurance policies work
Premiums and death benefit value
Your premium is based on a number of factors like your age and health, but it’s also tied to the value of your death benefit. Think of how much you’d like your beneficiary to receive when you pass away. Maybe it’s just enough to cover your final expenses or maybe it’s enough to give them a major financial cushion.
Types of cash value
There are several different types of whole life cash value policies. Some of your money may accrue a fixed interest rate. Others may be tied to investments, bringing the potential of both greater risk and greater reward to your account. All types of cash value whole life policies also come with administrative fees in most cases.
Who should get a whole life insurance policy?
- People who want lifelong insurance protection: You may want to leave money behind for your spouse, children or other beneficiaries regardless of age. This is especially important if you have debt you want to get rid of upon your death or if your savings isn’t enough to support your surviving dependents.
- People who want easy liquidity for estate planning: Life insurance benefits go directly to your beneficiaries, unlike many other assets that can get held up in probate. This gives quick liquidity to your beneficiary.
- People who provide long-term care support for a dependent: If you financially care for someone and expect that responsibility to continue throughout your life, then whole life insurance can leave enough to continue that care after you pass away.
Whole life insurance vs. term life insurance
There are several major differences between whole life and term life insurance. First, is the length of time you’re covered. Term life insurance only lasts for a certain number of years, mainly 10, 20 or 30. Whole life, on the other hand, provides you with coverage no matter how long you live.
Another difference is the cost. Term life is usually cheaper compared to whole life, since your policy doesn’t last as long. However, there’s no cash value that comes with term life, so once your coverage ends, you don’t receive any money. With whole life insurance, you can tap into your policy’s cash value. This works differently depending on how your policy is set up. You could take out a loan, for example, or increase your premium payment to compensate for funds you take out.
How to choose the best whole life insurance company for you
- Start with companies that offer the product you want. Not all insurance companies offer the same services.
- Evaluate how much the company listens to your needs. An insurance agent should ask about your financial situation, including your current assets, your debts and who you are responsible for in life.
- Compare whole life insurance policy offers. Look at the cost of the premium as well as the value of the death benefit. Also look for hidden fees, such as administrative expenses that come with the policy.
- Explore policy features. Make sure you understand the cash value component of the policy and what its growth is tied to — a fixed interest rate or the stock market?
- Find out how the agent is paid. This information can reveal whether they’re recommending a product based on your needs or the size of their commission. If paid on commission, make sure the policy value makes sense for you.
Benefits of a whole life insurance policy
Whole life insurance is more expensive than term life, but you can lock in a lower rate by getting a policy sooner rather than later. It becomes increasingly difficult to purchase life insurance as you get older. By purchasing whole life, you don’t have to worry about exorbitant rates if you think you’ll want coverage later in life.
This type of insurance also works as a forced saving account. If you’re not good at saving on your own, having a monthly or annual premium to pay can bolster your long-term assets. Just make sure you’re not over-paying in administrative fees.
The average cost of whole life insurance
Whole life insurance generally costs more than term life insurance because your annual premium doesn’t change as you age. Term life is cheaper because the insurer knows they’ll only need to cover you for a set period of time — the younger you are, the less likely you are to pass away during your policy.
There are several other factors that impact your life insurance costs. In addition to your age, insurers look at your health and the policy size (the dollar amount of death benefit) to determine your rate class. (Learn more in Best Life Insurance Rates in 2019)
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 or if you’re applying for a larger policy. To get pricing information, shop around and get quotes, which you’ll have to do through an agent or broker. You typically won’t find detailed online quote tools for whole life insurance.
Optional whole life insurance riders
- Accidental death rider
- Guaranteed insurability rider
- Child term rider
- Long-term care rider
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. 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 riders 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 whole life 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 that 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 because 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. Unlike investment dividends in taxable accounts, the IRS doesn’t tax whole insurance dividends.
[ Learn more: Earning Dividends Through Life Insurance ]
How to compare whole life insurance companies
Finding the best whole life insurance company is easier when you know what to look for. Follow these tips for comparing your options.
Check available policies and underwriting process
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.
Research the insurer’s financial strength and reliability
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 AM 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.
Look for consumer complaints
Consumer complaints give you an idea of what to expect once you actually get your whole life insurance policy. J.D. Power’s annual life insurance ratings reveal how well customers view their experiences with a company. It can give you an idea of what to expect when you or your beneficiaries need to take action on your policy.
Compare customization options
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, policy and 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. Here are some of the options:
- 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.
- 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).
Consider a policy that pays 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.
We welcome your feedback on this article and would love to hear about your experience with the life insurance providers we recommend. Contact us at email@example.com with comments or questions.