Whole Life Insurance: A Beginner’s Guide

An answer booklet to all your Whole Life Insurance questions

In such situations it is important to match the pace of this fast-changing world by planning ahead. Having a well-thought plan that focuses on securing the near future is very important, because let’s face it, you’re not going to be alone. There are many people and relationships in your life that you need to think about.

Ensuring financial stability for your life is one thing you can control.

And this is where Whole Life Insurance comes into play. 

This is the guide to clear all your whole life insurance- also known as permanent whole life insurance- concerns in a detailed way so that you’re absolutely sure about how to plan ahead. 

Let’s start with the basics. Stay tuned.

What is Whole Life Insurance?

Whole life insurance definition is simple and pretty much self-explanatory. 

Just like the name suggests, the policyholder is insured for their whole life. Which means the person can borrow the insurance money during their lifetime for an unexpected expense. This is a good option because your money is saved over the years and you can ask for it even during your life.

This cash accumulated over the years gives you an opportunity to borrow your ‘savings’ at any point in life whether it is for medical bills or your child’s tuition. 

Moreover, there is a guaranteed death benefit as well. In case the person dies during the whole life insurance time period, all of the money will be transferred to their beneficiaries. This obviously comes with a very logical condition that all premiums must be paid promptly and regularly during the time of the policy. 

Whole life insurance is designed to provide for you to use that accumulated cash value in your life. Because if you die, your beneficiaries will receive the death payout, not the cash value. 

Now that we have the definition out of the way, let’s dive into details to get a better overview of what is in store!

How does whole life insurance work?

The most common question that you may have thought about a lot must be this. How does it work? Is it easy to do, or is the process complicated? 

To answer your question in all honesty, the process of whole life insurance is a little complicated as compared to other life insurance options, however, it is very much doable once you’re in it. 

Whole life insurance policies have the potential to grow with time for added benefit; the process may seem slow at first but it surely picks up speed after a couple of years. 

How?

This is based on the assumption of your earnings growing at a certain rate with each passing year, so much that it exceeds the cost of insuring you. Sometimes you’re even able to pay all your lifetime premiums in one go! 

Upon choosing a suitable whole life insurance plan, it will derive a premium amount that you will either have to pay each month or annually. It is usually a nominal amount, but more expensive than other insurance options because this policy offers lifetime coverage. 

Whole Life Insurance Cash Value

Cash value is actually a very important savings component of your whole life insurance policy. All of your insurance premium is calculated and a certain percentage is added as a tax-deferred amount to the cash value which you can utilize during your time. 

And with time, the cash value increases!

How long does it take for Whole Life Insurance to build cash value?

Many experts say that you should wait at least 10-15 years before getting your hands on the cash value. This is enough time for you to have a huge chunk to use in your life to pay off hefty expenses. 

There are a few details on whole life insurance that are too important to be missed, such thin lines are easy to be overlooked but make sure you have all the information so that you don’t make mistakes.  

Is Whole Life Insurance taxable?

The plus point of this is that you can withdraw all of your money WITHOUT paying any tax, however, in such a case that you surrender the policy, all of the money you have withdrawn previously which is the cash value from premiums, all of that money will be charged against income tax. 

Whole Life Insurance Explained

By creating an example of an imaginary person and attaching small numbers to their case, it will help you in understanding whole life insurance better. 

Alex is a 35 year old healthy male who opts for a whole life insurance plan of $25,000 from a particular company. The cash value account is accumulated to $10,000. When Alex dies, his beneficiaries will receive $25,000 only, NOT $25,000 plus $10,000 of cash value. 

Had Alex withdrawn the money as cash value surrender during his life, he would have received the accumulated cash value.

Is there a waiting period for Whole Life Insurance?

Waiting period for insurance is basically known as the time the insurer has to wait for the policy to be in effect. For instance, some policies have at least 24 months waiting time- which means if you die in between these 2 years, your beneficiaries won’t receive a death benefit.

During this waiting period, it is highly unlikely for the insurer or their family to receive any kind of  benefit otherwise associated with the policy.

There are however some policies that may give you an immediate benefit, and there are also some that may take upto 5 years! But the average amount of years in the waiting period is usually 1-2 years. 

What is Variable Whole Life Insurance?

Variable Whole Life Insurance can be described as a kind of insurance policy where the premium is leveled, but the policyholder has an option to choose between investment plans. This is also known as a much simpler variant of whole life insurance, and works the same way too- a tax-free amount is paid to people who inherit your money and an accumulated sum is gathered as part of cash value. 

Policy Endowment

A whole life insurance policy endows when the cash value accumulated equals the death benefit! This is usually done at age 100, until then all premiums are to be paid. 

In such a case that the policy endows, the insurance company absorbs the accumulated cash value and beneficiaries only receive the death benefit when the insured dies. But if you had purchased a rider on your policy where the beneficiaries would receive cash and face value, then they will get both: the accumulated cash value AND death benefit. 

What happens if you stop paying Whole Life Insurance Premiums?

There can be many reasons why a person would stop paying premiums; either they can’t afford to pay them anymore or simply because they aren’t interested in the policy any longer. In both cases that you stop paying premiums, this will happen:

In a term life insurance, your policy simply relapses. 

In a whole life insurance plan, you can cash out on your savings before stopping to pay for premiums. This way you will have some amount to enjoy in your life. If the sum exceeds to what you pay in premiums, some tax may be applicable. After you’ve done this, it is obvious that you’re no longer insured.

Another case is that your whole life insurance policy also relapses. You can however reinstate this if your insurance company allows you- you may have to go through the whole documentation process again and may even have to pass a medical exam. Some insurance companies do allow reinstating the policy within 5 years of you being inactive, but some don’t. So you really have to try your luck here!

Whole Life Insurance Scam

The internet is full of stories and incidents where people have been fooled; policies that are too good to be true are handed to clients on a gold platter. One way to avoid such scams is to have lots and lots of knowledge about whole life insurance. If the knowledge gap is rightfully ended, there are very less chances that someone might swoop in and mess with you.

Identity theft is one very common whole life insurance scam; to fill in documentation, people are forced to give out personal information which is later used to commit fraudulent activity. Before you’re sure of how legit the contract is, don’t give out sensitive information about yourself.

Fake people selling fake policies is also very common these days, and it is not always easy to spot red flags! For any company that approaches you, do a full background check. Go through their website, client testimonials- EVERYTHING. 

People selling insurance illegally are professionals who can easily manipulate you through their words and once you’re trapped, they will run off with your money! To avoid this, get all the 

information you can so that you’re in the position to cross-question them. 

What is the difference between Whole Life and Term Life Insurance?

While looking at insurance plans, a lot of people compare term life insurance with whole life insurance to see which one works better for them.

It is important to know what these two are and what the basic difference is to know which one works better for you. 

Term life insurance is a policy for a limited number of years, usually ranging from 10-30 years. This only has a guaranteed death benefit that the beneficiaries inherit at the time of death of the insured. Most people opt for this kind of policy to secure the future of their spouse or children in the uneventful case that they die. 

The game is almost the same. Premiums are to be paid monthly or annually depending upon the particular life plan, and upon the death of the policyholder, the money will go to the trusted beneficiary.

Unlike whole life insurance, term life insurance does NOT have the option for the money to be used within the lifetime. In case a policyholder outlives their contract time, they are required to renew the policy and will not get anything when the said contract ends.

Upon renewal, it is very much possible that the premium is increased because now the person will be older in age- age plays a huge factor while deciding what premium must be paid. 

Can you have both Term and Whole Life Insurance policy?

YES!

You can have as many policies under your name as you wish, there is no legal rule that would suggest you otherwise. 

You can either convert your term life insurance policy into whole life, or even have both of them at the same time. 

In fact, sometimes it is also considered smart for you to have a term life policy and a back up whole life as well- this way you will not only have money to spend during your life but also a reserved backup for your family in case you die. 

Which is better Term or Whole Life Insurance

Again, like I have already mentioned, your objectives and aims of buying insurance really decides which one is a better fit for you. Both of these insurance policies are great, one option may work well for you, but may be a bad idea for someone else.

If you just want to secure the future of your family and are worrisome about what they would do if you were to die, term life is a good option for you. In such a case you don’t need to be insured for lifetime and keep paying higher premiums. 

If you think your financial condition isn’t stable enough and you may need a good amount in your life to pay for a wedding or college tuition or buying a house- then you might need whole life insurance where you’re able to use your savings during your life.

There are of course pros and cons of both options- you just need to see which one works best for you! 

Types of Whole Life Insurance

There are five major types of whole life insurance for adults that a beginner needs to know:

  1. Non-participating Whole Life: This is the type of whole life insurance where there is a fixed death payout and a constant rate of premiums that don’t change. Even though there is a guaranteed cash value, there is low chance of growth because here the policyholder isn’t participating in the investment activities of the insurance company. 
  2. Participating Whole Life Insurance: Eligible for dividend payments in the company, this type of whole life insurance has a high potential for growth- and because of this they often cost more. Since the policyholder is ‘participating’ in the activities of the insurance company, whole life insurance dividends are not guaranteed to be as much as it was decided to add in the cash value component.
  3. Single Premium Whole Life Insurance: This is the kind of whole life policy where all of the premium is paid upfront- a good option for you to invest! Moreover, now without having to pay premiums each month or year, you can just leave your cash value to grow before you take the amount out. 
  4. Universal Whole Life Insurance: Relatively flexible in nature, this kind of insurance policy gives you the option of reducing (to lower your premiums) or increasing (subject to your medical exam) your death benefit and paying your premiums in any amount during the given time period. 
  5. Indexed Whole Life Insurance: Here, the policyholder is allowed to allocate certain levels of cash value to either a fixed account or an equity indexed account. 

Whole Life Insurance Companies

Just when you know what whole life insurance is, you must be looking for the best whole life insurance companies that have suitable plans for you and your family. 

Taking advantage of this opportunity, i have crafted a list of the companies that not only give you affordable whole life insurance plans but are also great at what they do.

  1. Northwestern Mutual Whole Life Insurance
  2. Mutual of Omaha Whole Life Insurance
  3. AARP Whole Life Insurance
  4. New york Life Whole Life Insurance
  5. MetLife Whole Life Insurance
  6. USAA Whole Life Insurance
  7. John Hancock
  8. Globe Whole Life Insurance
  9. Colonial Penn Whole Life Insurance
  10. State Farm Whole Life Insurance

This is a list of companies that you can refer to with your needs so that not only they are able to suggest cheap whole life insurance plans but can also be the answer to all your queries. 

Family Whole Life Insurance

A family whole life insurance policy is where all of the family members- along with the insured (principal applicant) are all covered in a single policy. 

The principal applicant will be covered for their whole life, but the spouse and children are insured on a term basis. 

Premium for the principal applicant remains full, while their family is required to pay a lesser amount either annually or monthly, depending upon the nature of the selected policy. 

Whole Life Insurance for Children

If you have kids, you must have found yourself wondering about getting your child insured. 

First you need to be clear on why you want to do so. Insurance is usually done so that the money can be used later on in life, and in case of a child, no one is depending upon them financially. 

Most people buy whole life insurance for kids because they would want to get a lower amount of premium set because the child is of young age, or to use as a savings amount for future expenses such as college, downpayment of a house that they may later on buy, or a wedding. Or, in an unfortunate scenario that the child dies, there is guaranteed death payout. 

Gerber Whole Life Insurance specializes in getting insurance policies for children.

And on this basis, whole life insurance for babies is also not a very good idea. Think thoroughly about why you need to get your baby/child insured and whether it is really worth it or not.

The whole question is whether you need to get a child insurance policy; unless your child is diagnosed with an illness which may make it harder for him to secure insurance later in life, whole life insurance for children is probably not a very good idea. And if you don’t have cancer or diabetes in your family history, chances of your child getting sick are actually pretty low!

Best Whole Life Insurance for Seniors

If you’re above the age of 50 and haven’t ever been covered with insurance, now might be the best time for you to consider applying for one.

When you’re growing old, there may be a lot of unexpected expenses that are going to knock at your door; such as medical bills, business losses or even increase in cost of living. Buying whole term life insurance can guarantee you a good payout that you can use for these expenses during your life. And if you were to die, the money could be used as funeral costs and your family may have a chunk to live the rest of their lives on.

It is true that whole life insurance plans for seniors cost more, but if you go for a plan with a nominal payout, chances are that you will have to pay a very low amount of premium which is very well affordable to pay monthly or annually. 

There are many insurance companies that cater to guaranteed acceptance whole life insurance for seniors, some of them are even without a medical exam! 

Is Term or Whole Life Insurance better for Seniors?

If you’re still unsure of whether to buy a whole life insurance plan, you can always opt for term life if your only goal is to secure the future of your spouse and kids after your death. Term life insurance plans are affordable and low in premium cost because they are for a limited amount of time and generally have a lower death benefit. 

Keeping this information in mind when seniors only have a couple of years till they kick the bucket, term life insurance is by far a better option. It is cheap and has a guaranteed death benefit!

Guaranteed Issue Whole Life Insurance

Also known as burial insurance is an option for seniors to secure their funeral costs or unpaid debts without the finances being a burden on the family. This is a whole life insurance no medical exam option for seniors to make it easier for them to qualify for insurance. 

Whatever you plan on doing, if you’re a senior and are close to reaching retirement age, the time to act is now to aim for a guaranteed whole life insurance for seniors.

Whole Life Insurance Pros and Cons

With all this information, you must be thinking: Is whole life insurance worth it? What are the disadvantages of whole life insurance? Is it better if i apply for it now?

I have made a quick list of pros and cons which will answer your questions more effectively, pros will tell you why whole life insurance is a good investment and cons will shed light on why whole life insurance is a bad investment.

Pros of Whole Life Insurance

  • Guaranteed death payout
  • For lifetime; can withdraw and use amount during your life
  • Constant premium cost throughout the policy
  • Works as an asset (cash value)
  • Tax-free death benefit
  • Tax-deferred cash value

Cons of Whole Life Insurance

  • More expensive premiums
  • Complicated process

As per this basic list of pros and cons, it is obviously that the benefits of whole life insurance are more. But still, the question of it being really worth it depends upon your goal. What do you aim to gain by the end of your life; is it managing expenses while you’re alive or is it focusing on your family’s future after you’re gone?

Simply self evaluating these questions will give you answers which will point you to the right direction of the policy you need. 

Whole Life Insurance Quotes

It is all about the digits!

This section of the article focuses on the somewhat technical aspect of whole life insurance rates that you must know before opting for a plan. 

Taking whole life insurance example of healthy men and women looking for a payout of $250,000 worth of coverage, this is what sample whole life insurance quotes online say:

Whole Life Insurance Rates by Age Chart

Age Female per month Male per month
25 $20.10 $23.05
30 $21.86 $23.07
35 $24.19 $26.48
40 $34.77 $40.21
45 $48.52 $61.40
50 $60.31 $81.72

Note: Sample rates for this article have been extracted online, courtesy of Business Insider.

Whole Life Insurance Calculator

Before you start looking for insurers (who might even charge you more) it is important that you calculate your insurance via online tools available to get an estimate of your insurance expense.

Aflac is a whole life insurance cost calculator tool available on the internet which helps you determine your whole life insurance cost with just one click!

The database requires you to answer just a few basic questions and based on those, it will give you an average cost of whole life insurance  and what you should be expected to pay each month!  

The Way Forward

Insurance in such changing times have become a necessity for some households, just the idea of being insured for lifetime is appealing to some people. It is great to have some money saved up to either be used during your life or be used as guaranteed death benefit, however, there are two sides of the coin to this as well. 

Make sure your insurance company transparently lays out all benefits and risks of insurance policies after thoroughly understanding your insurance needs. When you’ve successfully chosen a plan, make sure you regularly pay your premiums to continue with the policy!

Nabeel Ahmad

Nabeel Ahmad

Nabeel Ahmad is the founder and editor-in-chief of Insurance Noon. Apart from Insurance Noon, he is a serial entrepreneur, and has founded multiple successful companies in different industries.

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