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The Facts About Whole Life Insurance

whole life insurance on desktop with pen and papers in background

By McKenzy Bowers | July 26, 2019

Whole Life Insurance is the gold standard of life insurance policies. This type of permanent life insurance is one of the most misunderstood financial products on the market today. In addition to providing a guaranteed death benefit for life, typically with guaranteed level premiums for life, whole life policies develop significant guaranteed cash values over time which the policyholder can access. And the policy’s cash value grows year by year, guaranteed as well. Those guaranteed cash values are usually enhanced by dividends which are declared annually by the insurance company.

Premiums can be structured to stay level for as long as you live. Or, if you wish, they can be paid over a shorter period, such as 20 years, 10 years, or even a single premium…for a lifetime of guaranteed coverage.

So even though a whole life policy costs more, its overall value can be quite substantial:

  • Beneficiaries receive the policy’s death benefit no matter when the insured dies
  • Predictable, fixed premiums for the life of the policy (in most cases)
  • Cash value that can be withdrawn or borrowed against (in some cases)
  • Safe, predictable, and positive growth
  • Policy cash value that’s tax-deferred

Watch our video or continue reading to learn more about Whole Life.

Whole Life Premium Options

Level Premium

Level Premium Whole Life Insurance (sometimes referred to as “ordinary whole life”) provides a lifetime death benefit and level premiums for the life of the policy (until the death of the insured).

Limited Payment

Limited Payment Whole Life Insurance allows you to pay premiums for a limited period of time, but still provides lifetime protection. If you choose this option, you can pay off your policy more quickly, by paying higher premiums than traditional coverage. You can pay these larger premiums over a set number of years (e.g. 10 payments or 20 payments). Limited payment plans can also be based on age (e.g. whole life plans up to age 65 or to age 85).

Single Premium

Single Premium Whole Life Insurance is a limited payment whole life plan that is paid for by one large premium payment that is due at issue. In other words, the policy is paid-in-full at the time that policy first goes into effect, with no further premiums due thereafter. Once issued, the policy will have immediate cash value and loan value. This type of policy is more typically used for investment purposes than other forms of life insurance.

Disability Waiver / Rider

Some Whole Life policies include a disability waiver/rider feature that will pay your premiums for you if you were to suddenly become disabled. Can you think of any other financial product that allows you to put money away each year…and promises that if you can’t continue to make new payments due to being disabled…that same financial institution will make those payments FOR you?

Whole Life Cash Value

A portion of your Whole Life policy’s premium is set aside and accumulates as cash value. Over time, this cash value accumulates on a tax-deferred basis.

This cash value can be borrowed against or can be received as payment if the policy is canceled.

In the event that you decide that you no longer need, want, or can afford your Whole Life policy, you are entitled to surrender the policy and receive the cash value. (Note: The cash value of a policy is not the same as the face amount that’s paid out as a death benefit to your beneficiaries. Neither is it in addition to, it is only a portion of the total face amount!)

Borrowing Against Cash Value

When you borrow any portion of the cash value from your Whole Life policy, the outstanding loan will reduce the face value (or death benefit) until the withdrawn funds are repaid with interest. Many financial pundits don’t fully understand whole life and, as such, often criticize it. It IS significantly more costly than term insurance. But interestingly, it’s hard to find a person that has owned whole life for over 20 years that’s not happy with it. The “forced” savings aspect of this type of product is highly UNDER-rated. Many folks, do not have the discipline to save money long term. So this product, for some people, is often the place they have accumulated the most money over their lifetime (other than, perhaps, the equity in their home).

Whole Life Dividends: Participating vs. Non-Participating

Some Whole Life insurance policies are issued by “mutual” companies. If they are, the policies are generally considered to be “participating” or “par” policies…entitling the policy owner to receive dividends. Mutual companies have no public “shareholders,” so any excess profits of a mutual life insurance company can be returned in the form of dividends to the policy owners.

Participating Insurance

A Participating Whole Life policy pays monetary dividends. Since you are “participating” in the surplus earnings of the insurance company, you are entitled to receive a share of the excess profits in the form of dividends, which while never guaranteed, are NON-income taxable. In this type of insurance, the policyholders own the company, similar to owning shares in a publicly-traded firm. These dividends can be:

  • Paid in cash
  • Used to reduce your premium payments
  • Left to accumulate at a specified interest rate
  • Used to purchase paid-up additional insurance, which will increase your coverage’s face amount.

(Note: Dividends are not guaranteed to be paid)

Non-Participating Insurance

A Non-Participating Whole Life policy receives no extra dividend payments. Unlike a Participating Whole Life policy, the policyholder is not sharing in the surplus earnings of the insurance company. However, this type of policy still has a level premium and face amount during the entire life of the coverage.

Nifty Life Insurance Calculator

Our Life Insurance Calculator can help give you a rough idea of how much coverage you’ll need to make sure your family is financially protected when you die.

  • Annual income before tax: $

    Annual income is an important factor in determining your needs, but it’s not the only one. When you die, your life insurance is like your final paycheck.

  • % of income needed by dependents:  %

    Because you’ll be gone, presumably they won’t need as much as you’re currently earning.  Typically, 80% of your current income is a good place to start.

  • Your Age: years

    The younger you are, the more years of your income your family stands to lose when you die.

  • Number of years benefits are needed:  

    If you died tomorrow, how many years of income do you want to provide for your family?

  • Annual inflation rate (estimate):  %

    Because of inflation, in order to maintain your family’s current standard of living, you’ll need to plan for increases in their annual income to keep pace.  Historically, inflation has averaged between 2% and 4%.

  • Annual interest rate (estimate):  %

    This is an assumption as to how much you believe your spouse will be able to earn on the death benefit proceeds. We have found that most surviving spouses are usually very conservative in how they invest the death benefit. The most common thing we see is that the money gets deposited into a bank account. You know your spouse better than anyone. Pick a number that you feel your spouse will be able to comfortably earn on the proceeds.

  • Based on the information you provided, you need about

    of life insurance to replace your income for the next years.

So what’s next? Call us at 800-442-9899 and let’s chat about the types of coverage that may make the most sense for you.


Keep Reading and Learn How to Save Money for Life

Whole life. The myths and facts.

Life insurance rate class. How much will you pay?

Accidental death coverage


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