August 5, 2019

Average Cost of Whole Life Insurance

Read more about Life Insurance

Whole life insurance is generally much more expensive than term insurance. Is the added cost worth it? Keep reading to find out.

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Average Costs of Whole Life Insurance

Healthy individuals aged 30–50 pay an average of $293 per month for whole life insurance. Rates vary based on age and gender.

Average Monthly Costs for Males
The average male purchases whole life insurance with a value between $50,000 and $500,000.

  • Age 30: $193.00/month
  • Age 40: $297.00/month
  • Age 50: $475.00/month

Average Monthly Costs for Females
The average female also purchases whole life insurance with a death benefit between $50,000 and $500,000. Average rates by age are:

  • Age 30: $172.00/month
  • Age 40: $240.00/month
  • Age 50: $380.00/month

Death Benefit Options
Rates for whole life insurance also depend on the death benefit you choose. The average costs for a healthy individual aged 30–50 is:

  • $100,000 Death Benefit: $134.00/month
  • $250,000 Death Benefit: $321.00/month
  • $500,000 Death Benefit: $644.00/month

Term life insurance is generally less expensive because of its length of coverage. Term life lasts for a set amount of time, whereas whole life is guaranteed for your entire life.

The average person spends $169/month on a $500,000 term life insurance policy, while the average cost of a $500,000 whole life insurance policy is $644/month.

Factors Affecting Life Insurance Rates

No two people pay the same whole life insurance premiums. Premiums are invested by the insurance company and are designed to generate profit.

If insurance companies have to pay the death benefit sooner than anticipated, they may lose money. Therefore, they calculate the risk of premature death and increase the cost of policies that may not remain in effect for a long enough time.

Top risk factors that determine your rates include:

Age
The younger you are when you purchase whole life insurance, the less you'll pay in premiums. Younger people have a longer life expectancy, which is a lower risk for the insurance company.

Gender
Men have a shorter life expectancy (76.1 years) than women (81.1 years). For this reason, women typically have lower premiums than men.

Health
Insurance companies will look at your current health, including weight, blood pressure, and medications. They may also request a detailed health history report and will generally ask about your family's health history.

If there is a history or risk of serious diseases or illnesses, such as diabetes, heart disease, or cancer, your premiums may be higher.

Lifestyle
Drinking, smoking, and participating in risky hobbies such as skydiving or rock climbing can increase life insurance rates.

Pros and Cons of Whole Life Insurance

Pros

  • Guaranteed rate of return
  • Builds cash value
  • Access to cash value while you are still alive

Cons

  • Higher premiums
  • Slow cash value growth
  • Fees to access the cash value

Understanding Cash Value

A portion of your whole life insurance premiums go toward the policy's cash value. The insurance company will invest this amount on your behalf.

You are guaranteed a minimum rate of return on these investments. Over time, your cash value will grow, and you can choose what to do with the balance. Your options include:

Accumulate at Interest
If you elect to have the cash value accumulate at the market interest rates, it will ultimately become a part of the death benefit. Your beneficiaries will receive the full amount of the policy death benefit plus the entire cash value amount.

Purchase Paid-up Additions
The insurance company will use the cash value to increase the death benefit of your policy over time. For example, a $500,000 policy can increase to $600,000 without any additional premium or review of the health history process.

Reduce Premium Payments
According to the Society of Actuaries, it takes approximately 15 years for your cash value to be larger than your premium payments. At this point, you can elect to have the cash value reduce your premiums. In rare cases, you do not have to pay a premium at all.

Reduced Death Benefit
At any point in time, you can choose to reduce your death benefit and no longer pay premiums on the policy. This is a great option for an individual who wants to keep permanent insurance in place but can no longer afford the monthly premium.

Loan Option
Once the cash value of your whole life policy begins to grow, you can borrow from the balance. The loan doesn't get reported to credit bureaus, but will charge interest. If the balance of the loan is not paid by the time of the insured's death, the amount owed will be deducted from the death benefit.

Surrender Option
If you no longer wish to keep the policy, you have the option of surrendering the insurance and taking out the cash value minus a surrender charge.

Payment of Policy Debt
If the cash value balance is sufficient, most insurance companies will allow it to cover any missed premium payments on the policy. Selecting this option will ensure that your policy does not lapse.

Frequently Asked Questions

Is whole life insurance taxable?
The death benefit of whole life insurance policies is given to beneficiaries tax-free. However, if you receive dividends from your policy, you may be liable for taxes on the amount that exceeds the total premiums paid.

Does whole life insurance expire?
Whole life insurance is guaranteed and therefore doesn't expire. Most policies mature at the age of 100 or 121. If you are still alive at maturity, you will immediately receive the full death benefit of the policy tax-free, and your policy will cancel.

How long do I have to pay for a whole life insurance policy?
Many whole life insurance policies require premium payments until the policy matures. However, when you apply for a policy, you can select different payment periods.

Most insurance companies offer single-pay, 10-pay, 15-pay, and 20-pay options that require larger premium payments. Once the payments are made, the policy is paid in full and guaranteed. Selecting a shorter pay period will decrease the total amount paid over time.

Is whole life different than universal life insurance?
Both whole life and universal life policies are permanent life insurance policies. Universal life offers flexible premium payment options, whereas whole life has fixed premiums for the life of the policy.

Universal life policies also have interest rates that adjust monthly, whereas the interest rates on whole life policies adjust annually.

What is the maximum age to get whole life insurance?
Whole life insurance premiums increase with age and are mainly dependent on one's health. Some insurance companies offer policies up to age 90.

Many companies also offer a guaranteed issue whole life insurance policy, which can be purchased regardless of health—and often age.

Bottom Line

Whole life insurance provides guaranteed coverage with higher premiums. It is best suited for individuals looking for long-term and guaranteed insurance, and is best purchased at a young age.

The cash value that builds in whole life policies is extremely useful, as it can pay for any missed premiums, grow with interest, and even reduce total premium amounts.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

More from CreditDonkey:


Whole Life Insurance Pros and Cons


Best Whole Life Insurance


What is Whole Life Insurance?

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