Compare whole life insurance

Whole life insurance works well if you want a lifelong policy that builds cash value at a fixed interest rate of return, and monthly premiums that stay the same. When comparing policies, look for low premiums on high coverage such as $500,000 or more, with above-average guaranteed rates of return — like 2%. To help you narrow down your whole life policy options, our experts spent over 500 hours researching 100+ life insurance companies and their prices and policy features.

How do I compare whole life insurance policies?

You might look at these factors when comparing whole life policies and the brands that underwrite them:

• Financial strength. Rating agencies like AM Best score an insurer’s financial strength, confirming whether it has the resources to pay out claims.
• Company type. Public companies are publicly owned by stockholders. Mutual life companies are owned by policyholders and may reinvest any dividends into your cash value.
• Rate of return. Your insurer guarantees a minimum interest rate on your policy’s cash value. Ask your insurer how it calculates its minimum rate.
• Customer reputation. Check out insurer reviews on sites like J.D. Power, TrustPilot, NAIC and Finder to find out how they treat customers.

Best whole life insurance companies

How much does a whole life insurance policy cost?

Whole life insurance can cost six to 10 times more than term life policies, according to Finder’s analysis of prices across 14 major life insurers. Young, healthy people might pay $250 to $1,000 a month for whole life, versus $50 to $150 a month for term life. Whole life costs more than term life for three main reasons:

1. Lifelong coverage. As long as you pay your premiums, you’ll be covered for your entire life.
2. Guaranteed cash growth. The cash value typically guarantees a fixed rate of return around 1.5%–3.5%, according to Consumer Reports. Other permanent policies fluctuate with the market.
3. Commission. Life insurance agents make more money from this plan due to its lifelong coverage, so you may pay commission fees.

How does whole life insurance work?

Whole life insurance coverage lasts your entire life, and level premiums mean you’ll pay the same amount each month. Unlike term life, these policies earn cash value on part of your premium that you can use as a loan.

A whole life policy guarantees a death benefit to your beneficiaries when you die. The payout is equal to the policy’s face value — if you buy a $250,000 policy, your beneficiaries will receive $250,000 when you die.

Is whole life insurance taxable?

The premiums and death benefit for whole life insurance aren’t taxable, according to the IRS. Also, the cash growth isn’t typically taxable because the premiums come from your after-tax income.

However, any loans you take out might get taxed if you withdraw too much or the loan and its interest totals more than the cash value. You also may pay taxes if you surrender the policy at a profit from your premiums.

How does the cash value work?

A whole life policy’s cash value earns interest at a fixed rate set by your insurer, typically 1.5% to 3.5%. Once you’ve built enough cash value, you can take out loans against your policy. But any loans reduce your death benefit by the same amount.

But if you don’t use the cash value, your beneficiaries won’t see any additional money aside from the death benefit. Also, the cash value takes a long time to grow and may not equal the premiums you’ve put in.

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Is whole life insurance worth it?

A whole life policy may help if you:

• Are funding a trust for a special needs child or lifelong dependent
• Will make tax-deferred cash withdrawals
• Want a guaranteed return on the cash value
• Want the policy to pay estate taxes for your heirs

It also makes sense for high-income earners who have maxed out other investment savings. Otherwise, you can find less expensive investments like a 401(k) with a higher return.

If you have basic life insurance needs and affordability is your main concern, you may be better suited to a term life insurance policy.

Pros and cons of whole life insurance

Alternatives to whole life insurance

If whole life insurance isn’t right for you, explore these options:

• Term life insurance. This cheapest type of policy pays out if you die within a set time like 20 or 30 years.
• Universal life. This policy never expires and builds cash over time. Since premiums can change, it’s ideal if your income fluctuates or you need payment flexibility.
• Variable universal life. This policy offers a variety of investment choices to match your risk tolerance while growing your cash value.

What’s the difference between whole and term life insurance?

Similar to whole life insurance, term life coverage provides a lump sum death benefit in the event that the policyholder passes away while the policy is still active.

Term life insurance is usually the best pick for most people because it’s much cheaper, and whole life insurance isn’t the powerful investment tool that many advisors claim it is.

Bottom line

To get the most competitive rates possible with the policy features you need, reach out to a few choice companies and compare whole life insurance policies.

Common questions about whole life insurance

How do I pay my whole life insurance premiums?

With most insurers, you can opt to pay your premiums in installments, including monthly, quarterly, semi-annually or annually. The premiums stay the same for the life of the policy.

Some whole life policies come with a limited pay option, letting you pay off your premium in 10 to 30 years. Your premium will be higher with this option — but you won’t pay premiums for your entire life.

What happens if I stop paying premiums?

Your insurer will terminate your policy, which means you’ll no longer have coverage. There is a grace period, though. It varies by state, but you’ll typically have around 30 days to make up a missed payment.

During this time, your coverage stays in force — so if you die during the grace period, your beneficiaries will still receive the death benefit.

If you’re struggling to pay your premiums, you may have options:

• Reduce the coverage. You could drop riders you don’t want or need anymore.
• Use your cash value or dividends. If you’ve built enough cash value or have a dividend payout, you can use either to pay your premium.
• Surrender your policy. You can get some money for your policy, but it only amounts to the cash value you’ve built.

Written by

Katia Iervasi

Writer

Katia Iervasi is a lead writer and spokesperson at NerdWallet and a former editor at Finder, specializing in insurance. Her writing and analysis on life, disability and health insurance has been featured in The Washington Post, Forbes, Yahoo, Entrepreneur, Best Company and FT Advisor. She holds a BA in communication from Australia's Griffith University. See full bio