Whole life insurance plays an important role in our life, especially when something bad happens to us. If you’re lacking knowledge about this topic, don’t miss this article. We’ll help you understand more about whole life insurance rates.
What Is Whole Life Insurance?
Before getting to learn about whole life insurance rates, let’s see what whole life insurance is.
Whole life insurance offers coverage for the rest of your life, including a cash value component that you can use while you’re alive. It’s a type of permanent life insurance.
The cash value in a whole life policy is guaranteed to stay the same throughout the length of the policy and the death benefit is guaranteed. If there are no cash value loans or withdrawals when you die, your life insurance beneficiaries will receive the full death benefit.
Whole life insurance offers three kinds of guarantees:
- A guaranteed minimum rate of return on the cash value
- A promise that your premium payments won’t go up
- A guaranteed death benefit amount
Whole life insurance is more expensive than term life insurance since people are guaranteed to have a death benefit when they die when they buy this type of life insurance.
On the other hand, term life insurance offers level rates for a specific period, such as 20 or 30 years, and they only offer coverage, not cash value.
Types of Whole Life Insurance
There are many different types of whole life insurance, including:
- Indexed whole life insurance
- Guaranteed issue whole life insurance
- Limited payment whole life insurance
- Joint life insurance
- Modified whole life insurance
- Reduced paid-up whole life insurance
- Simplified issue whole life insurance
- Single-premium whole life insurance
- Variable whole life insurance
- Whole life insurance for children
A traditional whole life insurance policy is quite simple, you’ll get lifetime coverage that pays a benefit to your loved ones when you die and a cash value that grows at a fixed rate set by your insurer.
The standard policy might have variations to offer different investment options, payment schedules, or be designed for specific circumstances.
How Does Whole Life Insurance Work?
Whole life insurance guarantees payment of a death benefit to beneficiaries for level, regularly-due premium payments. The policy includes a savings portion along with the death benefit.
Growing cash value is an essential component of whole life insurance. The interest may accumulate on a tax-deferred basis in the savings component.
A policyholder is able to remit payments greater than the scheduled premium to purchase extra coverage (paid-up additions) to build cash value.
The policyholder can access the cash value while the insured is still alive. They just need to request a withdrawal of funds or a loan.
Interest is charged on policy loans with rates varying per insurer. Normally, the rates are lower than you’d get with a personal loan or home equity loan.
However, a withdrawal could chip away at the death benefit or even wipe it out entirely. This depends on the policy type and the size of its remaining cash value.
How Is Whole Life Insurance Rates Determined?
Life insurance premiums are based on life expectancy. So, the younger and healthier you are, the cheaper your premiums.
Each insurer has its own life insurance underwriting and they weigh factors differently. That’s why it’s always a good idea to compare quotes from multiple insurers.
These are the main things that affect your whole life insurance rates:
- Age
Good health and life expectancy lower the cost of insurance. So younger people pay less for life insurance. Getting a whole life policy at a young age is a wise idea to qualify for coverage and it gives you more time to build the cash value.
- Gender
Women tend to have longer life expectancies compared to men. Therefore, women will almost always pay less than men of the same age and health.
- Smoking status
Since smokers are at a higher risk of developing health issues, they often pay two to three times as much for life insurance as non-users.
- Occupations and hobbies
If you have a hazardous or high-risk job, you’ll pay more than someone with a desk job. Similarly, if you take part in risky activities, you tend to charge a higher premium.
- Health
This includes any pre-existing conditions, your blood pressure and cholesterol levels. Insurers will also look at your height and weight.
They may also ask if you have a family history of serious health conditions such as heart disease, cancer or diabetes.
How Much Does Whole Life Insurance Cost?
Whole life insurance costs depend on age, health status, and lifestyle. The cost of a whole life insurance policy also depends on the coverage limit you choose.
Here are examples of whole life insurance quotes based on a 30-year-old male of average height and weight for $500,000 in coverage.
For whole life insurance, he has to pay $360 per month and $4,323 per year. As for 30-year term life, he will pay $30 per month and $357 per year.
Whole life insurance is unaffordable for many people. There is a significant distance between term life and whole insurance costs.
Is Whole Life Insurance Worth It?
Whole life insurance is often not worth it because of its expense and because many people do not need insurance for their entire lives.
However, a universal life insurance policy is more affordable if lifelong coverage is your main goal.
Here are some benefits of whole life insurance policy:
- Provides lifelong coverage
- Dividends usually paid to you
- Cash value builds
- Funding a trust
- Paying estate taxes
- Funding a buy-sell agreement
Disadvantages of whole life insurance policy:
- Expensive
- Inflexible
- No benefit from good stock market years
And that’s all about whole life insurance rates that you may need to know. Knowing the policy will help you in deciding whether you should invest in it or not. Remember to consider all factors that affect its policy as well.
