Best Whole Life Insurance

How to Find the Best Whole Life Insurance

Whole life insurance is a good option for people who are looking for permanent insurance coverage that provides a death benefit payable throughout the policyholder’s life, without being limited to a specific term of years. Whole life insurance is also a good solution for policyholders who want to gain some cash value accumulation as part of their monthly insurance payments over the years – whole life insurance offers a cash value component which is guaranteed to grow over time.

When looking for the best whole life insurance policy, each policyholder should consider these factors:  1) Getting the best performance from the cash value, 2) Finding a stable insurance company, 3) Paying the lowest fees while still getting a good value, and 4) Understanding the policy’s internal rate of return.

Each variant of whole life insurance on the market offers different options for premium payment schedules and different levels of risk. Consider your full financial picture and overall financial goals to find the whole life insurance policy that best aligns with your needs.

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Is Whole Life Insurance Right for You

People typically buy whole life insurance for two main reasons: They want permanent insurance coverage that will last for their entire life, and/or they want a savings component (cash value) to go along with their life insurance premium payments.

Typical buyers of whole life insurance include people who are later in life and cannot qualify for term life insurance for health reasons, people who want to use whole life insurance as a tool for estate planning and final expenses, and people who want to have access to tax-deferred investments for retirement and other long-term expenses.

Whole life insurance tends to cost more than term life when comparing the premium cost per $1,000 of death benefit. People whose expected need for life insurance is temporary and whose first priority is getting the maximum amount of death benefit might want to consider term life instead of whole life.

But whole life policies offer certain advantages over term life: they provide permanent coverage which will never expire and will continue to provide financial protection to the policyholder’s beneficiaries, no matter what happens with the policyholder’s health. Whole life policies also have a cash value component which provides an added source of tax-deferred savings that the policyholder can draw from or borrow against to help finance various needs.

Getting the Best Cash Value Performance

Whole life policies are complex financial instruments. They have to account for the costs of insuring a person’s life over a span of several decades, while also tracking the steady accrual of cash value and paying interest. Because of this complexity, different insurance companies’ policies will offer different levels of financial performance, and it is not always easy to calculate the performance of a cash value policy without knowing all the details.

However, in general, whole life insurance cash value can be expected to earn between 2-5% interest each year, with some fluctuations from year to year depending on the markets, the performance of the individual insurance company, and the details of the individual policy.

Participating whole life policies, which gain dividends from the profits of the insurance company, can often earn more than non-participating policies. However, dividends are not guaranteed. And there is also a slight risk that the interest rate could decrease during less profitable times. Dividends in a typical year might add an extra 2% growth to the cash value component.

Finding a Stable Insurance Company

Ultimately, the best whole life insurance comes from the best life insurance companies. Whole life insurance policies are not FDIC-insured – the only guarantee that a policy will be paid is the financial strength and reputation of the insurance company. Whole life insurance policies last a long time – if a policyholder buys a whole life insurance policy at age 25, he is covered for the rest of his life, even if he lives to 100. This means that it’s best to buy whole life insurance from a strong, stable, reputable insurance company. Choose an insurance company that has been around for a long time, and for each insurance company being considered, check on the company’s financial strength ratings.

The lowest premiums are not necessarily a sign of better value – in whole life insurance, as in so many other purchase decisions, sometimes “you get what you pay for.” Policyholders are better off buying whole life insurance from an established insurance company with a proven track record of financial strength and the ability to pay claims, rather than a “fly by night” insurance company that no one has ever heard of. Buying whole life insurance is an investment in the policyholder’s future and a way to provide for the potential needs of the policyholder’s family; find an insurance company that is likely to still be around and able to pay its obligations 20, 30, or 50 years into the future.

Paying the Lowest Fees (While Still Getting a Good Value)

Whole life insurance policies, being complex, long-term financial arrangements, tend to cost more than a simpler, temporary term life policy. However, it is still possible to shop around and find the best deal with the lowest fees.

Some of the fees that go into a whole life policy include sales commissions (to pay the insurance agents and brokers who sell the policies), administration fees (to handle the paperwork, customer service calls, and processing of applications and claims) and mortality charges (to pay the death benefits for policyholders who have died). Each premium payment has to help cover all of these fees while also leaving money to add to the cash value account. Policyholders should try to strike the right balance in comparing whole life policies. On the one hand, it’s important to try to save money on fees. Even saving 1 or 2 percent per year on fees can add up to thousands of dollars over the life of the policyholder. On the other hand, going with a company that offers rock-bottom low fees is not always the right answer. Just as paying low premiums is not always a sign of quality, low fees can also be a sign that the company is not well established and financially stable.

There are real costs involved with offering whole life insurance, and the best insurance companies know how to account for these costs while still offering a good value. So while it’s important to be mindful about fees, don’t choose a policy based on fees alone. It’s better to pay a bit more to have the confidence and peace of mind that your insurance company knows how to do business and will be around for a long time to come.  

Understanding the Policy’s Internal Rate of Return

One method of calculating the performance of a whole life insurance policy is to measure the policy’s internal rate of return. This is the actual yield on the cash value of the policy after all premiums, fees and charges have been paid.

It can be complicated to calculate this return accurately, as there are many factors and changing variables that come into play. But there are various online calculators that can be used to make a good estimate.

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