Whole Life Insurance Basics
As you may know, there are two primary types of life insurance policies – term life and permanent life insurance.
With whole life, this falls into the latter category of permanent life insurance coverage, which means that it will be in place until you die.
Once the policy has been set up and placed in force, it will stay with you as long as you keep up with the premiums.
Furthermore, they offer level premiums so you won’t be paying any more money than you do when you first lock into your policy.
With this permanent death benefit in place, your beneficiary will have money upon your passing to pay for expenses and use wherever and for whatever needed.
However, there is also a second part to a whole life policy which is the cash value. With this in tow, you will have an amount of money that builds over time tax-deferred under IRC section 7702.
Whether you want to withdraw it early or even borrow against it, cash value can have many uses.
Before we head into the tips section, we should also point out that there are cons to whole life insurance.
The main whole life con is that premiums are higher than they would be with a term life insurance policy. If you are already quite stretched financially, this could prove to be a stumbling block.
Biggest Whole Life Insurance Companies
With this in mind, who actually sells whole life insurance? Since it is one of the more popular and common life insurance options, you will find that most of the large companies do have some form of whole life policies.
With the likes of MetLife, Guardian Life Insurance, Northwestern, Penn Mutual and MassMutual, you even have a chance to earn dividends at the same time.
With State Farm, there are various options for limited payments and even a single-payment policy.
With New York Life, they offer a fairly standard policy as well as a custom policy where there is a chance to build the cash value at a much quicker rate at the expense of a large death benefit upfront.
MassMutual participating whole life insurance has consistently paid dividends since 1869. In 2017, MassMutual’s dividend will be 6.7% for eligible participants. That is a gigantic 200%+ return in contrast to the 2017 average of 2% interest rate on a CD that you have to park your money in for 5 years to get!
The Best Whole Life Insurance Policy
As we said earlier, we will be addressing some of the biggest questions and issues that come with life insurance and this is another. How much coverage should you be looking for?
Before you make any decisions, you need to assess your needs and work out exactly what the objective is for your policy.
For example, a small policy of $15,000 would be perfect for covering funeral expenses, medical bills, and any other costs that come after your death.
On the other hand, you might need a much larger policy if you plan to pay off debts and/or a mortgage, cover estate tax, or use the policy cash value for retirement planning.
If you only want to cover your funeral and numerous other expenses, you will need to look for a company that deals in small policies.
Just because one of your friends has a huge policy, this doesn’t mean that you need the same. If you know exactly what needs to be paid for after you pass away, you know the coverage required.
Whole Life Insurance Approval Process
With whole life insurance, you should also be aware of the different types of application processes, such as no exam whole life insurance vs fully underwritten whole life insurance.
If you want to find the best rates possible, this will be achieved with a medical exam as well as answering some simple medical questions so the company gets to know your health.
If you have been turned down for insurance previously or are looking to avoid a medical exam, the second option would be a simplified issue whole life insurance policy. Here, there will be no medical exam but you will need to answer some simple questions.
Although this will be slightly more expensive than having a medical exam, you may be able to receive life insurance despite being rejected for a health issue in the past.
Whole life insurance providers also offer ‘guaranteed issue life insurance’ which can be a great options for those looking to avoid the medical exam as well as any questions.
These types of permanent policies have a cash value component which essentially acts as a forced savings account.
Each year, a percentage of your premiums go into this account and it will grow with interest while being free from tax.
Over time, you will have opportunities to borrow against this money or you could use it to purchase paid up life insurance.
If you take out a life insurance loan you will see a reduction in the death benefit in proportion to the loan amount plus interest accrued.
If you’re looking for the best whole life insurance policy, you should look into who offers the best growth rate.
Additionally, you will also notice that some companies offer dividends each year which can add a nice little bonus. However, it will primarily be the companies owned by policyholders, called mutual companies, which offer this option.
With all life insurance companies, they should provide a policy illustration of how the cash value performs with a policy.
For you to secure the best policy, you need to ask which sections are guaranteed.
With most mutual insurers, they will base their illustration projections on both guaranteed values and on illustration projections which include dividends.
Whole Life Insurance Fees
When it comes to premiums, these are 100% decided by the life insurance companies who are free to adhere to marketing strategies.
Within each premium, there will be a ‘loading’ which covers taxes to the government, commission to agents, administrative expenses, and various other operating expenses.
You whole life policy illustration is a document that will show you how well your policy is performing. In addition to this, it should also show what is expected to happen in the future.
With whole life policies, some companies have been known to continually reduce their dividend scale and lower interest rates which has a dramatic impact on your policy. Once you choose the right policy, your cash value will grow healthily both now and into the future.
Whole Life Insurance Riders
With each policy, you will have the option of adding life insurance riders which are options that attach to your contract.
For example, a disability rider will have your premium covered or waived should you become disabled and can’t work and earn money.
Although it will increase your premiums with the riders attached, they can add protection and ensure that it continues to be paid (or waived) should something happen and you cannot take control yourself.
With each company, you will see different riders and prices so this is something to compare.
Whole Life Insurance Payment Options
If you have previously asked for quotes from insurance companies, you will notice that some offer monthly costs while others offer this along with quarterly or even yearly payments.
Ultimately, how frequently you pay is down to you and whichever way you find it easiest.
If you have the money, it will be cheaper to pay per year because interest is added whenever you break the fee down into four or twelve payments.
If you pay monthly, the company is essentially lending you the coverage until you pay. When you pay for a year, you have already paid for coverage so no interest is added.
Before choosing a company, you should check their A.M. Best financial rating. If a company has got good ratings from A.M. Best or any other reviewer, it suggests that they are in a good position to pay out claims both now and in the future. With life insurance, you should probably look for an A.M. Best rating of B+ or higher.
After this, you can also look towards reviews from previous customers as well as their rating according to the Better Business Bureau. Here, you will see how many complaints they receive and how happy customers are with their resolutions to problems. If you pick a company that is great in all areas, you are more likely to be a happy customer yourself.
Compare Whole Life Insurance Rates
Once you have done all of the above, you can then compare prices and the different policies to find one that meets your needs. Due to the variable nature of whole life, it is difficult to trust while life insurance calculators.
It is recommended that you have a life insurance broker, such as the agents at IBUSA, create some illustrations for you.
As long as you pay attention to the tips we have provided today, you will find the ‘best’ whole life insurance policy for you!