Whole life insurance
Whole life insurance is the simplest form of permanent life insurance coverage and a lasting financial asset. It can be one of the best options for people who want lifelong protection, wealth-building cash value, and the most guarantees available in a life insurance policy.1 But is it right for you? Universal life insurance also provides permanent coverage with the added advantage of flexible premiums – but that flexibility can affect cash value growth and your death benefit.2,3Term life insurance is typically much less expensive, but it has no cash value, and coverage is temporary. Read on to learn more.
Why people choose whole life insurance:
From the first day the policy is in effect, it provides an income tax-free death benefit to help protect your family's financial wellbeing.4 But unlike a term policy, your coverage lasts a lifetime – it can't be canceled as long as premiums are paid.
Like all permanent policies (and unlike term life), there's a cash value that grows over time and earns interest.5 You can take out policy loans against it, use it to pay premiums, or even use your policy for money to supplement income in retirement.6
With a mutual company (like Guardian), the cash value of a whole life policy can earn dividends – because policyholders may receive a share of profits.7 These can increase a policy's value beyond the growth rate guarantee.
The income tax-free death benefit is guaranteed never to decrease. The cash value is guaranteed to grow at a set annual rate. Your monthly or yearly premiums are guaranteed never to change.
The policy's cash value grows on a tax-deferred basis, so no taxes are owed on current earnings or interest. Also, the benefit is paid income-tax-free to beneficiaries.
A life-long financial asset: How the cash value grows in a whole life policy
All whole life policies have a cash value that is guaranteed to grow – tax-deferred – at a given rate. However, different life insurance companies have different ways of calculating the rate of value growth. Guardian actually offers eight different growth rate options: for example, some of your cash value can be linked to the S&P 500 index.8,9 Whichever method is used, after a few years of guaranteed cash value growth, it can turn into a useful sum of money. You can take a loan against that asset or use it in other ways to help get you through difficult times – or take greater advantage of the good times.
Whole policies from a mutual insurance company (such as Guardian) can also earn an annual dividend – a portion of the company profits. Dividends can increase your cash value beyond the guaranteed growth rate. While policies don't guarantee dividends, Guardian has paid them every year since 1868.
Checklist: Is whole life insurance right for me?
|What I want:||What I should get:|
|I want life-long protection||Whole or universal life|
|I want to build tax-advantaged cash value||Whole or universal life|
|I want access to policy cash while I'm alive||Whole or universal life|
|I want guaranteed cash value growth||Whole life insurance|
|I want the opportunity to earn added dividends||Whole life insurance|
|I want the flexibility to raise or lower my premiums||Universal life insurance|
|I want lower premiums for permanent coverage||Universal life insurance|
|I want a guaranteed death benefit||Whole or term life|
|I want guaranteed level premiums||Whole or term life|
|I want the biggest benefit per premium dollar||Term life insurance|
You can also buy a term policy to supplement your whole life coverage.
Some people want extra income protection for a limited time, for example, while their children are still home. Fortunately, it's easy to get term life insurance quotes online, so you can quickly see how affordable it is – either as a supplement for permanent life insurance, or as a standalone policy.
How whole life insurance compares to other options
Compared to a term policy:
Whole life insurance policies can cost at least five times more than a term policy with the same amount of coverage. But term policies give you fewer benefits: the protection is temporary, and it doesn't build value because it's pure life insurance. If you just need to protect your family's finances for a limited time, for example, while children are still at home, a term policy can be a good choice. But once the term is over, it has no value – and to continue being protected, you have to apply for a new policy with higher premiums because you're older. In contrast, whole life provides lifelong protection at a consistent cost with a wealth-building component that continually increases value. You or your beneficiaries are also assured of an eventual payout, so you may feel you're getting more value for your premiums.
Many term policies can be converted to whole life.
Many companies (including Guardian) allow conversion without a new health exam for at least part of the term. It can be a smart way to continue your life insurance protection indefinitely and build assets for the future.
Compared to universal life policy:
Whole life is simpler, offers more guarantees – but provides less flexibility. Like whole life, a universal policy provides cash value, but the premiums are variable: you can raise or lower your payments as you see fit, within the policy limits. This can be useful for people with varying incomes. However, paying in less diminishes cash value growth and can eventually result in the need to pay more to keep your policy from lapsing.
Whole vs. Term vs. Universal at a glance
|Whole Life Insurance||Term Life Insurance||Universal Life Insurance|
|Coverage period||Lifetime||Limited to a specific term (typically 10-30 years)||Lifetime|
|Premiums||Fixed||Usually fixed||Can vary|
|Build cash value||Yes, with guarantees||No||Yes, without guarantees|
|Cost||More expensive than term, often more expensive than universal life||Less costly than whole life or universal life||More expensive than term; but often less than whole life|
|Income tax-free death benefit||Yes||Yes||Yes|
|Investment options||Guardian provides options; other companies may or may not||No||Standard – No
Variable – Yes
|Primary uses||Death benefit; tax-deferred asset accumulation; tax-advantaged wealth preservation and transfer||Death benefit||Death benefit; tax-deferred asset accumulation; tax-advantaged wealth preservation and transfer|
How do you get whole life protection, and what does it cost?
Each whole life contract is unique, with a benefit amount and options tailored to the needs of each policy owner (for example, you can get an accelerated death benefit rider to help pay for end-of-life care). Premiums vary widely based on the benefit amount, age, lifestyle, gender, and other factors. Your health also affects rates, and with most policies, you'll have to get a medical exam as part of the application process. In any case, you can expect to typically pay more for whole life than term – but you also get longer-lasting protection with additional financial benefits.
Is it the right choice for you? Consider speaking with a financial professional who will listen to your needs and dig deep to learn more about your needs and goals. They can help you decide how much protection to get and which type of policy (or policies), then guide you through the options that best fit your specific situation. How do you find such an experienced professional? Ask a friend or colleague for a recommendation. Or we can put you in touch with a Guardian financial professional.
Frequently asked questions about whole life insurance
What are the disadvantages of whole life insurance?
Compared to a term policy, any permanent policy type - including whole life - will have significantly higher premium payments for a given benefit level. A whole life contract is also somewhat complex, in part because it's designed to protect you for the rest of your life, and it includes a cash value that can be used as an asset to help fund various life events. Another potential whole life drawback is fixed premiums: people with variable incomes may find it hard to pay them in years when earnings are down. These people should consider a universal life policy with more payment flexibility because the premium can be adjusted up or down within a certain range.
Are whole life insurance policies worth it?
As with other financial products, that depends on the life situation and goals of the person insured. If you want life insurance protection that lasts your entire life, coupled with the financial protection of a cash value component, then a whole life policy from a reputable insurer may fit your needs. It can also be a worthwhile investment for older people concerned about estate planning and minimizing the effects of taxes for their heirs.
What is the best whole life insurance?
It's hard to say which insurer offers the best life insurance for a given person's needs. However, specific policies and contract terms vary in ways that can make a significant difference: for example, Guardian offers more cash value growth options than many other life insurance companies. Underwriting methods are also distinct: Guardian will offer policies to healthy people living with HIV, but other companies may not. In addition to these more subjective criteria, there are objective measures that can help you determine which may be the best life insurance companies to work with:
- High Financial Strength Ratings (FSRs) - Independent companies rate the financial strength of each life insurance company to ensure their ability to meet obligations.10
- High customer satisfaction scores - There are customer surveys and reviews that can tell you how satisfied others are with a company's services.
- Low customer complaints - State regulators and private organizations collect and publish data on customer complaints.
- Product selection and customization - Some companies focus on term insurance, while others offer term and whole with a variety of optional riders that tailor a policy to your needs.11
- Policyholder dividends - Some insurers – mutual companies – may pay whole life policy dividends, and others don't.
- Direct underwriting - Some companies issue their own policies, while others sell policies issued by other companies.