Understanding Whole Life Insurance Rates

Life insurance is a confusing investment, and it can be hard to see beyond the price when shopping policies. Term policies certainly help the budget-conscious, but the substantial benefits of permanent policies should be worth considering, even if you are young.

Whole life insurance rates may be expensive, but the peace of mind these plans provide makes them an appealing option. The comprehensive coverage and rider options of whole life offers confidence that you and your beneficiaries will receive the maximum benefit.

As a premium option, whole life insurance may be perfect for some but cost-prohibitive and impractical for others. This article will explore whole life insurance rates, who benefits from whole life coverage, and how to find the right policy for you.

Why Choose Whole Life Insurance?

Whole life is permanent life insurance, giving the policyholder lifelong coverage. These are generally more expensive than other plans, especially term options. Let’s see where that extra money goes by looking at the benefits and guarantees of whole life insurance.

Coverage Lasts Your Entire Life

Whole life insurance policies never expire, unlike term plans that require renewal at the term’s close. Premiums are typically paid over a specific timeframe but can last your whole life. Plans may have monthly payments until you reach a certain age or they may be fixed for a particular number of years. 

After making payments for the specified time, the policyholder no longer has to make payments but keeps the same coverage amount for the rest of their life. For those needing coverage for more than 30 years, the guaranteed death benefit ensures that beneficiaries will receive a payout regardless of when you die.

Cash Value Accumulation

Among the exclusive guarantees of whole life insurance, building cash value is the most intriguing. Portions of premiums are added to a tax-deferred cash value account. The percentage of your premiums that are added to the account varies depending on the insurance company.

The majority of life insurance policies have a guaranteed minimum rate of return while others offer non-guaranteed dividends. These additions, along with overfunding, can significantly impact cash value accumulation and/or the death benefit. In most cases, however, it can be difficult to gauge the exact growth rate.

You can take advantage of cash value while you are alive, with access available through low-interest loans or tax-free withdrawals. If you die, any unpaid amount on loans will be taken out of the death benefit to cover the difference. With both loans and withdrawals, the cash value is reduced and it will take longer to build back equity.

Cash Surrender Value

Whole life insurance, unlike other permanent plans, also carries a guaranteed cash surrender value when policies are canceled. Whatever cash value has accumulated in the account is redeemable, though the income off of this type of withdrawal will be taxed. If you have been paying on it for a few decades, you may have accrued a substantial gain.

Cash value can be advantageous under certain circumstances, but there are usually better options for primary investment vehicles, like a 401(k) or IRA. Guaranteed minimum rates float around 1-2 percent and non-guaranteed amounts cap at roughly six percent. If you approach whole life primarily for its cash value component, it may take a few decades before the cash value exceeds the plan’s total cost.

Fixed Premiums

Unlike some other permanent life insurance plans, whole life insurance guarantees that your premiums will never increase. Policyholders pay the same amount until the policy is completely paid up. This layer of predictability makes life insurance budgeting easier to plan.

When Should You Buy Whole Life Insurance?

Given its high cost and specific benefits, whole life insurance is generally ideal for high-income earners with complicated estate needs. There are a few particular circumstances under which whole life insurance makes sense:

  • Funding a special needs trust: The guaranteed death benefit ensures dependents with special needs will be protected regardless of their age.
  • Adding investment options: If you have maxed out contributions to your other retirement accounts, whole life insurance cash value can open another path to growing your wealth.
  • Providing liquidity: Whole life insurance can provide the assets to cover death costs, like estate taxes and transfer expenses.
  • Funding a buy-sell agreement: If you are in a business partnership, you can use whole life insurance to buy your partner’s business shares if they pass away.

Whole Life Insurance Rates

Whole life insurance coverage can be five to 15 times the cost of a term policy for the same death benefit amount. The major cost difference comes down to the guaranteed death benefit, which pays off no matter when you die as long as the premiums were paid. 

No matter what kind of policy you choose, premiums will always be set according to the following:

  • Past and current health
  • Age and gender
  • Coverage amount
  • Coverage period
  • Additional riders

Age is the largest factor in determining rates and available payment terms. Health is obviously another primary consideration, with insurers categorizing policyholders according to their health in a hierarchy:

  • Preferred Plus
  • Preferred
  • Standard Plus
  • Standard

Companies may also include substandard or tobacco user categories, which will face even higher premiums. Most policyholders fall into the Standard health category. However, to ensure the best possible whole life rates, you can get wellness credits through your life insurance medical exam to move you into higher health brackets.

Payment Schemes

The length of your limited-term payment will also determine how much you pay in premiums. It is commonly available in five payment schemes:

  • To age 120: Many companies now offer an option where you can pay premiums until age 120 or 121.
  • Whole life to age 100: Premiums paid until you die or reach age 100. Most insurers cover individuals until 120 under whole life policies.
  • Whole life to age 65: Premiums paid until age 65.
  • 10 pay whole life: Premiums are paid over 10 years. When strictly comparing basic policies, short guaranteed payment periods offer the best cash value accumulation.
  • 20 pay whole life: Premiums are paid over 20 years.

Some policies even allow a single payment, where the owner pays the entire premium in full at one time. Once they are paid off, the policy owner is still fully insured until they die and they still have growth potential through guaranteed returns.

Obviously, the shorter the payment term, the more the premiums will cost for similar coverage amounts. For example, a 20-year-old may pay $55/month for a whole life to age 100 policy while a 40-year-old may pay $130/month for the same plan. Likewise, a 20-year-old might pay $180/month for a 20 pay whole life plan but $300/month for a 10 pay plan.

Whole Life Insurance Alternatives

Whole life insurance works best if you need lifelong coverage or you’re in need of an additional investment mechanism. However, the high cost may cover more than you need. Let’s look at some alternatives to whole life that may be suitable depending on your circumstances.

Term Life

Term life insurance gets more expensive when you get older, but it is still the cheapest option by far. For example, the annual cost for a 20-year-old with a $500,000 policy maybe $270/year, while a whole life plan for the same amount may cost him $3,000/year.

Term plans cover you for a limited amount of time and do not accrue cash value. However, the low cost makes them appropriate for many individuals, including the following:

  • Low-mid income earners.
  • Individuals looking to cover debts they are in the process of paying off.
  • Individuals with children who need financial protection until they reach adulthood.

Guaranteed Universal Life Insurance

Although it is significantly pricier than term life, guaranteed universal life insurance is still cheaper than whole life options. This plan provides many of the perks of whole life in guaranteeing lifelong coverage but it lacks the investment component. If you are strictly buying life insurance for death benefits, guaranteed universal life insurance is a less expensive option that ensures protection.

How to Choose the Best Whole Life Policy

Many individuals overestimate their ability to pay for whole life insurance, resulting in roughly 45 percent surrendering their policies within 10 years. If whole life carries the benefits you need, get the best rates by following these tips:

  • Choose the right whole life coverage amount: Figure out your goals for your death benefit and choose an appropriate amount. It can be tempting to overshoot but staying reasonable ensures you get the best value.
  • Check the insurer’s third-party ratings: Look up your insurer’s customer service history through services like the National Association of Insurance Commissioners. You should also look at their financial rating from A.M. Best, Moody’s, and Standard and Poor’s. These will tell you if the insurer can reliably handle claims.
  • Shop the rate of return: For the best cash value accumulation, research the insurer’s guaranteed rates of return.
  • Research your medical conditions: Check out how your insurer manages past or current health conditions and family history. Some may provide more favorable rates than others if you do show particular risks.
  • Consider riders: For additional fees, you can add riders to accomplish different investment or death benefit goals. For example, the waiver of premium rider protects you if you are unable to make payments due to a disability. Ask providers if they have the add-ons important to you.
  • Compare quotes: Most importantly, thoroughly review all of your whole life insurance options. Shopping and comparing quotes removes the potential for overpaying or underutilizing your whole life plan.


If whole life insurance sounds right to you or if you want to explore the alternatives, our team at NextGen Life Insurance is here for you. We not only supply life insurance quotes but also the knowledge and advice to find the option that perfectly matches your needs. Get your free quote today or call us at 646-216-4199 to get started.