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Best Whole Life Insurance for 2020
(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.)
The Simple Dollar’s top picks for whole life insurance are Guardian, MassMutual, Northwestern Mutual and State Farm. They all sell and underwrite whole life insurance policies and have great ratings on financial strength, few customer complaints and a long history of paying dividends on their policies. These will be the best life insurance companies for most, but life insurance is personal.
To find the best life insurance 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 life insurance rates among companies that offer both term and whole life options in your area.
The 5 best life insurance companies of 2020
- Guardian— Best overall
- MassMutual— Strongest financial strength
- Northwestern Mutual— Best customer satisfaction
- State Farm— Most customizable
- New York Life— Most affordable
Understanding whole life insurance
Term life insurance has a set amount of time it works for. Whole life insurance, on the other hand, applies to your whole life as long as you pay your premiums. What you pay will also never increase, unlike with term life insurance which tends to get more expensive as you age.
Whole life insurance tends to be more expensive, but it guarantees that your beneficiaries will get a death benefit no matter when you pass away. Whole life insurance also accumulates cash value, which you can borrow against when you want to. This cash value is tax-free.
Who is whole life insurance for?
Most people are better off with a term life insurance plan, but some people may find a whole life insurance policy to be beneficial. Here are a few categories of people who might want to consider it:
- People who have dependents with long-term health needs: If a dependent will need longer-term financial stability and you expect to have health expenses, a whole life insurance policy can provide some financial assistance to make sure your dependent is taken care of.
- People who have maxed out tax-deferred accounts: For other financially wealthy people who have already used their opportunity for tax-deferred accounts, whole life insurance provides another investment option.
- People who want liquidity: Business owners who need some extra liquidity in their business may benefit from the cash-value component of whole life insurance.
Think carefully about if whole life insurance is a good option for you because it’s not the ideal choice for everyone.
Finding the best whole life insurance for you
In this comparison, the search for best whole insurance limited to companies that sell policies in at least 40 states to recommend companies 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.
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 these policies typically are limited to small dollar amounts of $5,000 to $25,000, they don’t offer 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 percent 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 Characteristics for comparing whole life insurance providers
1. They sell whole life insurance and underwrite their own policies.
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 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.
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.
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).
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: Make sure you get information about policy dividends from an agent if you apply for a policy with a provider not on this list.
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, shop around and get quotes, which you’ll have to do through an agent or broker because you won’t find detailed online quote tools for whole life insurance.
It’s difficult to get any specific details on whole life insurance policies, or even what whole insurance 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 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.”
- 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.
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.
Optional whole life insurance 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. 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.
Ask providers you are interested in about what riders they offer.
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 in Earning Dividends Through Life Insurance.)