What is Whole Life Insurance? Tips & Advice

Last Updated: April 6, 2019

What is whole life insurance? Whole life insurance is a form of life insurance that is meant to provide you with life insurance coverage for your entire life. This means that your whole life insurance policy should outlast you, and provide a death benefit to your loved ones when you pass away.

Some of our clients see advertisements on TV for extremely inexpensive “whole life” insurance policies and call us to get the details. As an experienced life insurance agent, I can tell you that there are hundreds of whole life insurance options available, but they’re not all created equal.

In fact, many “whole life” insurance companies do not provide lifetime coverage as promised. While there are a handful of insurance companies that offer affordable lifetime coverage, most of these companies are not the ones that you see on TV.

In this guide we’ll explain your best options for permanent or whole life coverage, and which polices should be avoided at all cost.

Quick Article Guide:

1. What Is Whole Life Insurance?
2. Guaranteed Approval Insurance: The Fine Print to Be Aware Of
3. 3 Questions You Need to Ask Before Buying Whole Life Insurance Without an Exam
4. What Is Guaranteed Universal Life Insurance?
5. What Is Non-Guaranteed Universal Life Insurance?
6. Avoid Life Insurance That Builds a Cash Value
7. What If I am Considered to Be a “High Risk” for Life Insurance?
8. How We Can Help


What Is Whole Life Insurance?

In the life insurance industry, there are two types of life insurance policies that can be considered whole life insurance. These policies are traditional whole life insurance that may build a small cash value and guaranteed issue life insurance. Guaranteed issue life insurance is the most commonly purchased type of whole life insurance due to the fact that it is heavily advertised on TV and through the mail. We’ll explain this type of coverage first.

Guaranteed issue or guaranteed approval policies typically offer life insurance with “no health questions” and “no medical exam.” While these policies are technically considered whole life insurance, they are vastly different than traditional whole life insurance because they are available to anyone over the age of 50, regardless of any debilitating health issues they may have.

While these companies will approve just about anyone, there are some serious drawbacks to buying this type of coverage.


Guaranteed Approval Insurance – The Fine Print to Be Aware Of

The major downside to a guaranteed approval or guaranteed issue policy is the fact that your coverage is limited for the first two years of the policy. In other words, if you were to pass away from any health issues during the first two years of your policy, your family will not receive the policy’s full death benefit.

Most people are unaware of this two year waiting period and the exclusions that come with it because companies often bury the exclusions within the fine print of your policy. By delaying the start date of your coverage, these companies are able to decrease their liabilities and lure people in by charging a low introductory rate.

In fact, some life insurance companies will even offer to issue your life insurance policy for just a dollar. Even though this offer may sound tempting, you get what you pay for, especially when you consider the price of the TV commercials and celebrity endorsers these companies use to advertise their products.

If these companies really charged such a low rate for permanent whole life insurance coverage, they wouldn’t be able to pay for their overhead costs, and they would be out of business.

We always advise our clients to be especially weary of purchasing a life insurance policy that seems too good to be true. Guaranteed issue companies often use celebrity endorsers or associations like AARP to market their products, but it’s important to remember that AARP is not a life insurance company. In addition, the cost of these marketing partnerships trickles down to the consumer, resulting in inflated prices.

If you’re considering purchasing a life insurance policy, make sure you ask your agent or insurer the three questions we’ve outlined below…


3 Questions You Need to Ask Before Buying Life Insurance Without an Exam

We’ve all heard the saying, “If it seems too good to be true, it probably is.” If you’re currently applying for life insurance and are in good health, it’s important to ask these three questions in order to avoid any misunderstandings about your policy.


Does my policy offer full coverage immediately?

Guaranteed issue life insurance companies impose a “waiting period” during the first two years of their policies to prevent people from purchasing life insurance from their deathbed. During this waiting period, if you pass away from any type of medical issue, your dependents will not receive a full payout from your policy. If you’re in good health, we suggest avoiding this type of coverage. Instead, purchase a life insurance policy that offers full coverage, as soon as your first payment is made.

At what age will my coverage end?

Many whole life insurance policies do not last your entire lifetime; instead, they cancel your coverage when you turn 80. For many clients, these policies do not make sense because their coverage will expire before they pass away.

If you’re in good health, we recommend looking into a guaranteed universal life insurance policy or a traditional whole life insurance policy that will provide level rates and fixed coverage until age 90, 95, 100, 105, 110, or 120.

If you’re under the age of 50, and cannot qualify for life insurance due to serious health issues, you may want to consider self-insurance. Self-insurance involves putting your own money into a savings account each month to pay for your final expenses instead of purchasing a life insurance policy.

Will the premiums of my policy increase as I get older?

If you are purchasing a life insurance policy that offers lifetime coverage, make sure you ask for a schedule of payments. Alarmingly, about half of the life insurance policies advertised on TV actually increase in cost every one to five years. As an example, AARP offers a $100,000 policy to 55-year-old males for a rate of $73.71 per month. However, by the age of 75, the cost of this policy skyrockets to $541.92 each month.

To avoid this potential scenario, we always recommend purchasing a policy with a level rate and fixed death benefit. These policies will not promise to start your coverage for a dollar, but in five years you won’t have to worry about the cost of your life insurance doubling. By selecting a policy with a fixed cost for the rest of your life, you’ll be able to better prepare and budget for your retirement. In addition, your loved ones will have the money they need to pay for any final expenses you may leave behind.

If you’re not sure of your options, please feel free to give us a call toll-free at: (855) 902-6494. Our agency works directly with more than 60 top-rated life insurance companies to match our clients with the best insurance options available for their needs. For most of our clients, traditional whole life insurance is not the best value. We usually recommend guaranteed universal life insurance because it provides the most coverage for the least amount of money. We’ve explained this type of coverage in the next section.


What Is Guaranteed Universal Life Insurance?

Guaranteed universal life insurance is the most advantageous form of lifetime coverage that you can buy. These policies typically offer $50,000 to $5,000,000 in life insurance protection and they can be used to provide money for funeral expenses, estate planning, pension maximization, or to provide a surviving spouse with income protection. Unlike traditional non-guaranteed universal life insurance policies, these policies do not require an investment, and they do not build a cash value.

Guaranteed universal life insurance policies are often referred to as term-to-90, term-to-95, or term-to-100 policies because they work just like a term policy. Like term insurance, guaranteed universal life insurance provides a level amount of coverage and fixed rates. However, most term life insurance policies expire by the age of 80, while guaranteed universal life insurance policies offer coverage until the age of 105, 110, 120, or 121.

Most Americans live longer than 80 years, which is why the longevity offered by guaranteed universal life insurance makes these policies ideal for estate planning needs or leaving an inheritance. Most estate planning attorneys will recommend purchasing a guaranteed universal life insurance policy until age 100 or later. However, the length of your coverage can be customized based on your family history. The Social Security website also has a lifetime expectancy estimator to help you determine how long to extend your insurance policy.

Please note: Guaranteed universal life insurance is not the same as non-guaranteed universal life insurance. We never recommend buying non-guaranteed life insurance coverage or any policy that relies on investments or builds a cash value. We’ve explained non-guaranteed universal life insurance in the next section.


What Is Non-Guaranteed Universal Life Insurance?

Universal life insurance rose to prominence in the 1980s when interest rates were at an all-time high. In fact, universal life insurance was the most popular form of whole life insurance on the market in the 1980s. Traditional universal life insurance was created as a form of permanent life insurance with an “investment opportunity” and customers were attracted to the idea of building “cash value” while protecting their families. With interest rates close to 20%, any type of investment seemed like a sure bet.

Fast-forward 20-30 years… With current interest rates hovering at around 3%, many of these policies are no longer performing as well as hoped. Unlike guaranteed universal life insurance, traditional universal life insurance has an adjustable cost of insurance or COI. As the years went by, traditional universal life insurance customers watched the cost of their life insurance rise while interest rates continued to decline.

As a result, the cash value in these policies depleted much faster than anticipated. In November of 2012, the term “draining away” was coined by the Wall Street Journal in an article they wrote about poorly performing universal life insurance policies. The story featured real life examples of people who could no longer afford to pump money into their life insurance coverage to offset the increased cost of coverage.

Surprisingly, some agents still recommend universal life insurance to their clients. The idea of building a cash value is understandably appealing, but it’s important to understand the difference between a guaranteed rate of return and a speculative rate of return. Both of these values are illustrated in your application, but we notice that most agents focus on the speculative rate of return rather than the guaranteed rate of return.

The speculative rate of return is the interest rate that your policy’s cash value will earn in a perfect scenario. The guaranteed rate of return is the interest rate that the life insurance company is actually willing to guarantee you’ll earn on your policy’s cash value.

The speculative rates illustrated in your policy are based off of an ideal market, but according to Kenneth Himmler at Integrated Asset Management, as interest rates remain low, “more than 70% of these policies are not generating enough money to cover their costs.” If your traditional universal life insurance policy is not earning enough interest to cover costs, it will not build a cash value, and it will not last your entire lifetime.


Avoid Life Insurance that Builds a Cash Value

In addition to relying on a risky investment strategy, universal life insurance policies are also more expensive than other forms of permanent life insurance. In order to build a cash value, universal life insurance policies require the insured to overpay for the cost of their life insurance to accumulate a cash value.

Rather than paying into an investment that often underperforms, renowned financial advisers like Bob Brinker and Dave Ramsey recommend keeping your investments and life insurance separate. Paying off your mortgage early, maxing out your 401k, or setting up a savings account will almost always produce better results in the long run.

The truth is, the cash value in your universal life insurance policy is never really your money. If you withdraw the cash value from your universal life insurance policy, it is considered a loan against your policy, and this loan must be paid back with interest. If you have not repaid the loan and you pass away, your policy will pay out a reduced death benefit to your beneficiaries based on the amount of your loan.

A loan from your universal life insurance policy may also result in a large balloon payment that is due later on, or even the cancellation of your policy if you are unable to pay back the loan. Moreover, if you pass away and you still have a cash value in your policy, the life insurance company gets to keep the money you have invested. Be careful when reviewing the policy and its potential return on your investment, and always be sure to read the fine print within your policy before accepting coverage.

We always urge our customers not to get into these policies because accessing the cash value in your policy is not as easy as it sounds. These policies are not favorable to the consumer. We strongly urge our clients to keep their life insurance and investments separated. You can control the cost of your life insurance and keep your payments down by buying a policy without a cash value.

Trust the financial experts and invest the difference into an investment opportunity with higher returns. If needed, this will allow you to access your own money without sacrificing your life insurance coverage. Maxing out your 401k contributions each year or paying off your mortgage early will serve you better in the long run.

We often work with people who are trying to pull the cash value out of their non-guaranteed universal life insurance policy. This money can then be used to buy a new permanent life insurance policy with fixed rates and without a cash value. By purchasing a new guaranteed universal life insurance policy, you can avoid any surprises in the future and lock in guaranteed rates and coverage until the age of your choice. Below we’ve provided some actual rates for a guaranteed universal life insurance policy.

Guaranteed Universal Life Insurance Quotes by Age and Gender – $100,000 of Coverage

Current AgeTo Age 90 MaleTo Age 90 FemaleTo Age 95 MaleTo Age 95 FemaleTo Age 100 MaleTo Age 100 Female

To find out how much this type of coverage will cost you, or to get accurate quotes, please request a free quote online or give us a call toll-free at: 855-902-6494.


What If I am Considered to Be a “High Risk” for Life Insurance?

Term Life Advice works with over 60 top-rated life insurance companies to match our clients with the best insurance options available to them. If your health issues prevent you from qualifying for term life insurance or guaranteed universal life insurance, guaranteed issue life insurance may be your only option.

We firmly believe that Gerber’s guaranteed issue policy is your best option when applying for guaranteed issue life insurance. You will not be asked any health questions, and you will not be required to perform a medical exam. Because of this, most applicants are guaranteed to be accepted. When applying for coverage, you will need to complete a short phone interview, and Gerber must speak directly with the insured. Guaranteed issue policies are not available to people who currently reside in a nursing home, an assisted living facility, or are receiving hospice care.

Gerber Life is an AM Best rated company that has been in business since 1928. They sell guaranteed acceptance life policies in $5,000 increments and range from $5,000 to $25,000 for both men and women between the ages of 50 and 85. Gerber Life guarantees your rates until age 100 and the rates are based off of mortality tables for your age and sex. If you happen to pass away due to a serious health issue during the two-year waiting period, your beneficiary will receive the premiums that you have paid plus 10% interest. As soon as your first premium is paid, you are covered for the entire death benefit if you were to pass away from an accident.


How We Can Help

Term Life Advice is an owner-operated agency that works with over 60 top-rated insurance companies to find the best options for our clients’ needs. We are experts at underwriting and specialize with applicants who are considered to be a “high risk” for life insurance. With a few health and lifestyle questions, we’ll be able to find the best life insurance policy available for you.

Most importantly, our services are free, and there is no cost to apply for coverage. In addition, our agency is licensed to sell life insurance in every state. Give us a call today and we can find you the best coverage available to you at the most affordable price. Give us a call today, toll-free: (855) 902-6494, or request a free quote online below and compare rates from dozens of life insurance companies in less than a minute.

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