Archives for November 2022

Although premium should be the least important consideration when purchasing life insurance, the most frequent question often asked in search engines is “what is the average price of life insurance.” The question can’t be answered with a single number since variables such as age, health, amount and type of insurance result in widely differing premiums. Many people are looking for the price of term insurance but actually hoping to purchase something they will never have to purchase again – which would be guaranteed Whole life insurance. That’s the most worry free type of life insurance because it keeps the same premium to age 100, and the amount of insurance is continued and you no longer have to pay a premium.

One of the advantages of Whole life insurance is that it builds a cash value.  Simply put, this is a benefit from the fact that you pay your life insurance premiums long before you die- or at least you hope so. The company has to invest that money while waiting for a claim against it. Since they are making money on your money, they put part of it into the policy in such a way that if you live to be 100, life insurance is paid up.

People who do not fully understand life insurance will also tell you that whole life insurance is the most expensive. Actually, this is only true to a point.

Those who try to promote Term life over Whole life will glorify the deceptively low premium.  It’s true that a person in his or her 20’s will be able to purchase a $100,000 Term life policy in a range between $15 and $30 a month, depending on the actual age, health conditions and types of riders that might be added. A Whole life policy for the same person might be twice as much. However, what agents often neglect to explain is that in the long run, purchasing a Whole life policy at a young age will ultimately cost less than purchasing a 20 year term and trying to renew it in later years. The increases on a Term life policy that has reached the initial renewal are significant.  A Whole life policy purchased and kept will ultimately cost thousands of dollars less than converting the Term policy to a Whole life policy when the initial term expires.

Whole life also creates an opportunity for additional retirement assets. If you decide after retirement that you really don’t need that much insurance, you can convert it to a fixed annuity and use the cash value as you need it. Of course, you will be converting the cash value, not the face value, so you have to know how much your policy has actually accumulated. Alternatively you can withdraw dividends from the policy at any time assuming the policy is a participating Whole life plan.

Finally, Whole life creates a source of emergency funds. While it is not advisable to borrow against your life insurance unless it is truly necessary, it is a funding source of last resort. You don’t even need to pay back the loan itself although you will need to make sure that you pay the interest each year. Additionally, you do not have to explain to the insurance company why you need the funds.

That being said, it makes sense to purchase whole life at the lowest possible premium. All companies base their prices on the government mortality table which establish the maximum cost of insurance. In addition to the mortality cost, there is an expense charge (the company’s cost of doing business) and an annual policy fee which covers the cost of billing and processing your premium.

Prices can appear to be quite different from one company to another due to the fact that companies use different tables for assessing or “rating” a client who has underwriting or health issues. Lifestyle choices, physical exercise and overall heath are also taken into consideration.

When you purchase life insurance, it’s a good idea to get help from an independent advisor who can explain whether a policy is really guaranteed whole life or a policy that would have modifications that increase the premium, limit benefits, or reduce the benefit after a certain period.

Obtaining quality advice is critical. A knowledgeable advisor will search the market place to design a life insurance program that will specifically suit your needs and budget.