Whole Life Insurance

It’s important to note that whole life insurance policies could have expiration dates. Some policies expire when the insured turns 100 years old or older. Read through your policy carefully to find out what happens to your CSV should your policy expire.

What happens if you stop paying your whole life insurance premiums?

If you miss several payments, your insurer will end your policy and you’ll no longer have coverage. Some policies can be setup to automatically pay the premium from the cash value if you miss some payments. Still, repeated missed payments could lead to the policy getting canceled. Or when you do start making payments again, you may have to repay the cash value taken to cover your premium.

If you’re struggling to pay your premiums, you may have options:

• Reduce the face amount. Depending on your provider, you may be able to lower your policy’s death benefit, which translates to a cheaper premium. You could also drop riders you don’t want or need anymore.
• Use your cash value. If you’ve built up enough cash value, you could potentially take a loan from that. Just keep in mind that if you don’t pay back the loan, the death benefit may be reduced. And if you withdraw too much cash, your policy could lapse.
• Use your dividends. If you have a “participating policy”, your whole life policy may pay dividends from investment earnings. You could use that money to pay your premiums. In contrast, “non-participating” policyholders do not receive dividends.
• Surrender your cash value and buy a term life policy. Term life insurance policies tend to be significantly cheaper than whole life. They offer protection for a set period of time, but they don’t have a cash value component.
• Drop your policy. If you no longer need coverage, you can let your policy lapse.

What should I look for in a whole life insurance policy?

When you’re comparing carriers, take these factors into account.

Financial strength

The goal of whole life insurance is not only to provide your family with a financial safety net when you’re gone, but also to earn money. Find out if your insurer has the resources to pay out claims, while also helping you build wealth.

Ratings agencies assess the financial strength of an insurer by looking at the company’s current financial situation, as well as their future outlook.

Here are some of the leading agencies and associated ratings scales that denote strong financials.

• DBRS – A or higher
• Moody’s – A2 or higher
• Standard & Poor (S&P) – A or higher

Rate of return

Your insurer may guarantee a minimum rate of return on the cash value of your whole life policy. The higher the rate, the more cash value you’ll earn.

Ask your insurer about the growth rate, and how they achieved that number. For instance, some companies will reinvest dividends into your cash value. This is great news for policyholders, but if the dividends are based on the company’s profits, they aren’t guaranteed. When you’re looking at projections, go off the base growth rate.

Company type

Life insurance companies fall into one of two categories: mutual and stock (or public). Which type of company you choose will depend on your financial preferences.

Mutual life insurance companies are owned entirely by their policyholders. If the company performs well, you’ll benefit from that in the form of dividends. With whole life insurance, those dividends could be invested into the cash value portion of your policy.

Stock life insurance companies are publicly owned and traded on the stock exchange. The value of the company fluctuates with the market, and any investor who purchases stock in the company is a shareholder.

Customer reputation

Financials aside, you want to choose a whole life insurer that treats its customers well. There are various sites that determine this, including the Better Business Bureau (BBB) and J.D. Power. These sites rate insurers’ interaction, transparency and operations. The BBB also records consumer complaints, and docks points when businesses fail to respond to them in a timely manner.

Is whole life insurance worth it?

If these situations apply to you, whole life insurance may be a suitable choice:

• You have a lifelong financial dependent, like a child with special needs. A whole life insurance policy can fund a special needs trust to pay for your child’s care when you’re gone.
• You prefer predictable payments — or level premiums.
• You want to build tax-deferred savings within your life insurance policy
• You want to be able to withdraw cash from your policy as needed.
• You’re looking to leave your heirs money to pay estate taxes.
• You have several assets, and need another to equalize inheritances. For example, you have three children, one business and one property. A permanent life insurance policy could bridge the gap and provide an inheritance for the third child.

Alternatives to whole life insurance

If whole life insurance isn’t right for you, these are some other options:

• Term life insurance. The simplest and cheapest policy, term life insurance offers coverage for a set period of time. This term usually lasts 10, 20, or 30 years, or to a predetermined age, like 65. If you die during the term, your beneficiaries will receive a lump sum death benefit.
• Universal life. Like whole life insurance, this policy never expires and it becomes a cash asset over time. But the payments are flexible, rather than set at a dollar amount. It’s ideal for those who foresee income fluctuations or can’t commit to paying the same premium each month.
• Variable universal life. With this coverage, you’re allowed to invest the cash value of the policy in the market. You would be able to choose a range of investment choices to match your risk tolerance.
• Term to 100. This insurance product is unique to Canada. It provides coverage for your entire life, although you’ll stop paying premiums after you turn 100 years old. Unlike other permanent policies, this option does not usually include any invested cash value. Therefore, term to 100 is generally cheaper than other permanent policies.

Once you’ve decided which type of policy is best suited to your needs, read our helpful guide about how to purchase a life insurance policy.

Bottom line

Life insurance is a serious matter, so it’s important that you give it the proper attention. When you know about all of the different policies on the market, you can narrow down which one will work best for your situation. To get the most competitive rates possible with the most flexible policy, reach out to a few choice providers and compare policies.

Need more general information about life insurance? Read our guide to life insurance.