Shopping for life insurance during the pandemic? Be aware that insurers may have changed their products and policy applications. For the latest information on how to cope with financial stress during this emergency, see NerdWallet’s financial guide to COVID-19.
If you want life insurance that won’t die before you do, consider a whole life insurance policy. Whole life insurance is a type of permanent life insurance that offers lifelong coverage, consistent premiums and a guaranteed return on the policy’s cash value.
Whole life insurance is a good policy to buy if you:
Need coverage that lasts for your entire life.
Want the payments to stay the same (called level premiums).
Want a guaranteed return on the cash value that builds up within the policy.
Largest sellers of whole life insurance
Here’s an overview of the biggest sellers of whole life insurance, based on the total amount of money policyholders pay each year for their coverage, listed in alphabetical order.
Whole life insurance options
Source: LIMRA’s U.S. Retail Individual Life Insurance Sales Survey for 2019.
Do you need whole life insurance?
Before you buy whole life insurance, ask a fee-only financial advisor if it’s right for you. Whole life insurance fits the bill for some people, but term life insurance is sufficient for most families.
Term life insurance, which has no cash value and ends after a length of time you choose, typically has much lower premiums than whole life insurance.
» Need term life instead? Get life insurance quotes
Another option is universal life insurance, whose premiums and returns can vary over time. Like whole life insurance, universal life insurance is permanent coverage that builds cash value.
To decide which type of insurance is best for you, consult a fee-only financial advisor, if possible. These advisors don’t make commissions from sales, so they can recommend financial products objectively.
If whole life insurance is right for you, these tips will help you find the best policy.
How to find the best whole life insurance company
Check the insurer’s financial strength
Look up the financial strength rating of each whole life insurer you’re considering. You can find financial information through a rating firm such as A.M. Best. Financial strength is important because a strong company has a better chance of being around decades from now to pay claims.
Any company with an A.M. Best rating of B+ or higher has a good ability to meet its obligations, in A.M. Best’s opinion. NerdWallet typically recommends considering insurers with ratings of A- or higher. Companies with ratings below that may not be quite as safe a bet and often have higher rates of complaints relative to their size.
All of the largest life insurance companies, for example, have solid financial strength ratings.
Research the insurer’s reputation for customer service
You can look up an insurer’s complaint index on the National Association of Insurance Commissioners website. The score is based on the number of complaints filed against the insurance company with state regulators, adjusted for the company’s market share (based on premiums written). The average is 1, so a score higher than 1 means the company received more complaints than expected for its size.
How to find the best whole life insurance policy
Choose the right amount of coverage
To find the right coverage amount when you’re buying whole life insurance, decide what you want the policy to accomplish. A relatively small policy — $10,000, for example — may pay for a funeral. You will need a larger policy if you have other priorities, such as funding a trust for a child with special needs.
Not all sellers of whole life offer policies in small amounts of coverage, and those that market small policies don’t always sell large ones.
Riders are coverage features you can add to a life insurance policy, usually for an extra cost. Examples include a chronic illness rider, which lets you access some of the death benefit if you have a serious illness, and a “disability waiver of premium” rider, which lets you skip payments if you become disabled.
Some companies offer an accelerated death benefit rider for no extra premium. This provision allows you to tap part of the death benefit if you become terminally ill.
Available types and costs of riders vary by insurance company. Make sure your policy has the riders you want.
Look at the rate of return on cash value
Whole life insurance policies feature a “cash value” savings account. A portion of your premium is invested in the account, which typically grows slowly on a tax-deferred basis. You can borrow against the cash value, use it to buy more coverage or surrender the policy for the cash. (The death benefit is reduced if you don’t repay a loan, and it disappears if you surrender the policy.)
Whole life insurance policies guarantee a minimum growth rate on the cash value. Some policies can perform even better if they earn dividends, which are portions of the insurer’s financial surplus. Dividends generally aren’t guaranteed, but they’re worth taking into account when you compare policies.
Life insurance companies provide illustrations of how each policy’s cash value could perform. Always ask which parts of the illustration are guaranteed. For example, an insurer may give cash value projections based on the payment of dividends, which aren’t guaranteed.
Understand the different approval processes
There are three main types of approval processes.
Fully underwritten life insurance typically involves filling out a lengthy application and taking a life insurance medical exam.
Simplified-issue life insurance involves answering some health questions, but there’s no medical exam.
Guaranteed-issue insurance means you’ll be accepted with no medical exam and no health questions.
Even if you have some health issues, you can generally find the best price by applying for a fully underwritten policy.
Simplified-issue and guaranteed-issue policies are worth considering if you’ve been turned down for standard life insurance due to health problems, but beware of the downsides. The death benefits offered are relatively small, and the costs per $1,000 of coverage are higher than for policies that require a medical exam. In addition, these policies don’t pay the full death benefit if you die within the first few years of coverage.
Get life insurance quotes for the same amount of coverage from several insurers to compare prices. You may find that rates for whole life insurance vary widely.