Broker Check

What’s Your Whole Life Plan?

July 16, 2018

In the ever changing landscape of life insurance products, there remains one stalwart that has changed very little since the first American life insurance companies emerged in the mid 1800s - the Whole Life plan.

Its longevity can be attributed to the features that have it made it the preferred choice of millions throughout its history. Designed as life insurance policy that provides guarantees and predictability, the popularity of Whole life insurance seems to ebb and flow in parallel to the volatility and uncertainty of the economic times.

As an example, in the late 1980’s and 1990’s, when the stock market went on its historic bull run, whole life insurance, with its lower, guaranteed yields, fell out of favor and Variable Life insurance plans were much more desirable. More recently, with the volatility and dramatic declines of the stock market, Whole life has had resurgence because of its predictability and guarantees.

For the people who, over the years, have held steadfast with their whole life policies, they have been rewarded with an asset (cash values) that has steadily increased while most financial instruments have either lost value or had some wild swings. In this instance, the tortoise and the hare allegory comes to mind.

Whether you’re considering the purchase of a whole life plan or you’re assessing your existing policy, these times call for a fresh look at this enduring life insurance product. Once considered the “vanilla” flavor of life insurance products, whole life plans do come in several varieties.

Participating Vs. Non-Participating

Both of these types of whole life policies offer guaranteed premiums and death benefits based on a predetermined schedule. The difference is that participating policies share in the profits of the issuing life insurance company through annual dividends. The dividends, which are not guaranteed, can be paid out in cash, left to accumulate, used to reduce premium payments, or used to purchase additional paid-up insurance. Generally, the premium payments in non-participating policies are lower than participating policies.

Level Premium Whole Life Insurance

In a level premium policy, the amount of premium paid is calculated so that more premium is paid in the early years of the policy, creating excess cash value that can be used to offset the increasing cost of insurance as the policyholder ages. The net effect is a premium schedule that remains level throughout the life of the policy.

Modified Premium Whole Life Insurance

Instead of a straight, level premium schedule, a modified premium plan allows for a fix schedule of premiums where the premiums are reduced during the beginning stage of the policy and then steps up to a higher level where it will remain for the life of the policy. The premium schedule is predetermined and is published as part of the policy specifications inside the policy contract. This type of policy is ideal for someone who wants permanent protection while in their lower income earning years and expects to his income to increase over a period of time.

Limited Payment Whole Life Insurance

For those who can afford higher premium payments in the early years of a policy, limited payment plans limit the number of years payments are required. Obviously, the premium payments are much higher in this type of plan, but so is the cash value buildup which enables the policy to limit the number of payments required to pay for the cost of insurance over the life of the policyholder.

Other types of whole life plans include whole life insurance includes indeterminate whole life, adjustable whole life, single premium whole life and current assumption whole life. Whole life insurance is no longer just a vanilla offering. With plenty of flavors to consider, there’s a big appetite for whole life insurance in uncertain times. Working with an experienced life insurance professional, you can explore the various plans to determine how best to meet your family protection needs.

*The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.