Types of Whole Life Insurance—Choosing the Best Coverage for You and Your Family
Updated · Mar 06, 2023
Whole life insurance provides security for you and your close ones.
It builds cash value that you can pass on to your family or access in case of an emergency.
But how do you choose among the different types of whole life insurance?
Here are some tips to help you choose the right policy.
What Is Whole Life Insurance?
A whole life insurance policy is a type of permanent life insurance. It offers lifetime coverage to the policyholder and builds cash value over time.
The difference with term insurance, for example, is that whole life policies cover the entire lifespan of the policyholder.
How Does Whole Life Insurance Work?
As long as the policyholder lives and pays the premiums as agreed, the policy remains active.
Like all types of life insurance, whole life policy providers distribute your payment into three components:
- Death benefit—The sum your beneficiaries will receive after your demise
- Cash value—The savings component of the policy
- Provider’s charges—Fees to maintain the account and make a profit
Apart from the fees they charge, insurance companies earn money by investing the premiums consumers pay.
There are several different types of life insurance, each of which offers its own set of benefits.
The policy that is right for you will depend on your needs and some circumstances, like your financial situation, age, and health.
Types of Whole Life Insurance
Whole life insurance is definitely worth it, but which type is suitable for you?
Below, we briefly examine the main options on the market.
We can divide them roughly into two groups depending on the risk and benefits they offer—traditional and interest-sensitive policies.
Traditional Whole Life Insurance
Traditional insurance plans offer:
- Fixed income return
- Tax advantages.
They are ideal for people who want to provide for their close ones without taking risks.
That’s the essence.
But there are numerous aspects that might vary.
Let’s see what the main options on the market are.
Participating Whole Life Insurance
With this type of whole life insurance, policyholders receive dividends from the insurance company.
The amount depends on the provider’s performance and the market.
You can reinvest the dividends to grow your savings or reduce the cost of future premiums.
Non-Participating Whole Life Insurance
In contrast to the participating insurance policy, non-participating plans don't provide dividends or other bonuses.
The premium, death benefit, and cash value are fixed upfront. They remain the same throughout the policy term length.
Indeterminate Premium Whole Life Insurance
This type of insurance is much like the non-participating policy.
It doesn't pay dividends or other opportunities to increase the cash value.
It’s different from other types of life insurance policy in that the premiums aren’t fixed. They change according to the insurance company’s financial health.
So, when the provider is doing well, premiums go down. Respectively, if its performance is declining, they increase.
As a guarantee for the policyholder, there’s an upper limit.
Economatic Whole Life Insurance
Economatic insurance is a mix of a participating whole life and decreasing term insurance.
Simply put, you get life insurance with dividends and additional supplemental coverage with decreasing term insurance elements.
With decreased insurance, you pay the same premium, but the death benefit decreases over time. It is often as mortgage protection.
With economatic insurance, you pay the same premium and reinvest the dividends into the supplemental coverage.
The downside is that if the dividends aren’t enough, the supplemental coverage will decrease with time.
Limited Payment Whole Life Insurance
With limited payment whole life insurance, you pay premiums only for a set number of years.
Sure, the payments are higher than those other types of insurance require.
But a limited payment whole life policy provides permanent coverage without requiring you to pay for life.
Single Premium Whole Life Insurance
Unlike most other types of life insurance, the single premium policy provides permanent coverage in exchange for a lump sum.
This type of policy is best for people who have a large amount of money and want to invest in permanent coverage.
Interest-Sensitive Whole Life Insurance
Under an interest-sensitive whole life policy, your premiums are tied to the market interest rate.
Although it offers the opportunity for bigger gains than traditional insurance, it’s a bit riskier.
Universal Life Insurance
The universal life policy is permanent insurance. That said, it’s slightly different from whole life insurance in that it offers a flexible premium and cash value.
There is a minimum amount due, but you can use the cash value to cover it.
With both universal and whole life insurance, you can borrow the cash value.
But the amount you’ve accumulated might be smaller with the universal life policy.
Current Assumption Whole Life Insurance
Current assumption is a whole life policy with elements of universal life insurance.
Initially, the premium is fixed for a set amount of time. After that, the company recalculates it. This process is repeated on certain anniversary dates.
This type of policy acts like universal life insurance in the way interest is credited and expenses are charged.
Excess Interest Whole Life Insurance
With this type of coverage, the premiums and death benefit are set.
The insurance company invests part of the premium and gives back the excess interest accumulated to the policyholder in dividends or cash value.
These types of whole life insurance are a good choice if you want to increase your cash value without much risk.
Whole Life Riders
A whole life rider is an add-on to a whole life insurance policy that provides additional benefits.
Some common options include:
- Accidental death benefit riders—These riders provide additional death benefits if the policyholder dies as a result of an accident.
- Living benefit riders—Provide cash payments to the policyholder while they are still alive. For example, if they are diagnosed with a terminal illness or need long-term care.
- Waiver of premium riders—Waive the policyholder's premiums under special circumstances. For instance, if they are unable to work due to disability.
- Child riders—Provide coverage for the policyholder in case of the death of their child named in the policy.
You can add the whole life policy riders when you first buy the insurance or later on.
How to Choose the Right Type of Whole Life Insurance for Your Needs
To determine which type of insurance is most suitable for you, consider the following factors:
- How much coverage do you need?
- What is your budget for insurance premiums?
- Do you have any existing health conditions that could impact your eligibility for certain policies?
Once you have a good sense of what to look for in a policy, you can start comparing whole life insurance types.
Do you have a lump sum you want to invest? Then consider a single premium policy.
Do you want your cash value to grow with the current interest rates? Take a look at the interest-sensitive insurance option.
After you find the one that fits your needs, start researching whole life insurance companies.
Here’s what you need to consider when choosing a provider:
- First, evaluate the company's financial stability. You need to be sure that the provider will be able to pay out the benefit in the event of your death.
- Next, check whether the provider offers competitive rates and flexible payment plans. This will help you calculate the whole life insurance cost.
- Finally, research customer reviews online to get a sense of the company's reputation. If most customers have negative experiences, perhaps it’s not worth the risk.
When choosing life insurance, it is important to understand the differences between the numerous options on the market.
After all, you’re choosing it for life.
It’s crucial to make the right decision for you and your loved ones.
Read our guide to the different types of whole life insurance policies to get a head start in your search.
With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.