The Cost of Whole Life Insurance (2024)

Several variables drive the cost of whole life insurance including age, gender, health status, amount of coverage desired and lifestyle.

Impact of Age

Regardless of the type of life insurance, there is a cost assigned to each dollar of death benefit based on your age. There is a mortality table that the insurance industry uses called a CSO Table, which is updated regularly and serves as a guide to insurance companies. In general, the cost of life insurance is lower for younger people, primarily because they have a longer life expectancy. As you age, your life expectancy shortens, which adds risk to the insurance company and is reflected in the mortality table. In effect, the cost of insurance rises as you age.

Impact of Gender

Statistically, women live longer than men, which is reflected in the mortality tables. For example, a male who’s 40 years old will likely have a higher premium payment than a female of the same age due to the woman’s longer life expectancy. Both will see the advancement of age to cause their life insurance rates to rise.

Impact of Health Status

The insurance industry is based on statistics related to a person’s risk of death. For example, if we compare two people the same age, one with significant health conditions and the other with no health issues, the person with significant health issues may not be expected to live as long. Since the person has a shorter life expectancy, the person’s cost of insurance will be higher compared to the person with a clean medical history.

Those with health issues might consider choosing a no-exam life insurance policy, to increase their chances of being approved for life insurance. Generally, no-exam life insurance is more expensive than traditional life insurance products.

Impact of Lifestyle

Lifestyle is a tricky category because it sometimes contains things you may think relate to health status. Nonetheless, the activities or actions considered risky — smoking, chewing tobacco, racing cars, flying planes or helicopters, rock climbing or scuba diving, for example — can impact your expected mortality. The shorter your expected mortality, the higher your average cost of premiums will be.

Impact of the Amount of Coverage

The amount of coverage you choose has some impact on the actual cost of insurance. In general, you’ll pay more for higher amounts of coverage. Some companies don’t price their premiums in lock-step with coverage, though.

Impact of Endowment

For the purposes of whole life insurance, an endowment is when your cash value account grows to be equal to the amount of coverage you purchased. Typically, whole life insurance companies guarantee to pay beneficiaries the endowment amount of a policy after the insured person reaches a certain (purposely unattainable) age, which is typically 121 years old. At that point, the policy terminates. Since there is a guarantee for endowment, the life insurance company needs to also make sure it is collecting enough in premium payments to allow the policy to endow by that age.

For base coverage and in average health, a male between the ages of 30 and 50 can expect to pay between 1.2% and 2.8% of the death benefit in annual life insurance premiums. A female between the ages of 30 and 50 can expect to pay between 1% and 2.3% of the death benefit in premiums.

Let’s say you are 30 years old, have an average health record and are considering $500,000 in whole life insurance. You could expect your premium to be $500,000 x 1.2% (or 1% for a female), which equals $6,000 annually for a male or $5,000 for a female. If you are younger, older or in better health, these estimates will adjust accordingly. While not exact pricing, it’s a solid gauge.

Comparing the cost of whole life insurance to term insurance is like comparing an apple to an orange. Whole life insurance offers a guaranteed death benefit that lasts your entire life as well as a potential return on your premiums paid, while term insurance provides a death benefit amount if the insured person dies during a set number of years, called a term. You can determine the period of time you want a term policy to last, which is typically 10 to 30 years.

Generally speaking, whole life insurance is more expensive than term. For that extra cost, you’re buying permanent coverage with a potentially greater set of benefits for the insured person’s loved ones.

Calculating whole life insurance premiums is a complex process that takes into account several factors, including age, gender, health status, lifestyle and how much life insurance you need. Insurance companies use underwriting — a process of gathering data to assess risk — to make decisions on underwriting classes that set the rate structure for each policyholder.

Actuarial considerations are also taken into account, which means a mathematical analysis of risk, in determining premium costs. Ultimately, this process is used to ensure that the insurance company will be able to cover any claims for each policyholder and remain profitable in the long run.

By understanding the factors that influence whole life premiums, you can make informed decisions about your life insurance coverage. Knowing how rates are calculated by insurers can also help you make sure you’re getting the best policy for your budget. A financial advisor can help you determine how much coverage is adequate for your needs.

Making the cost of whole life insurance work within your budget can sometimes be a challenge. Whole life insurance should be considered a long-term planning tool. It comes with often-guaranteed cash growth, a death benefit designed to last your entire life and access to the cash value of your policy. Here are a few things to consider.

Net Cost

The net cost of a whole life insurance policy is a simple calculation: Current year premium minus the cash value component. For example, in Year 1 you paid $5,000 in premiums — $600 in monthly premiums — to your whole life policy, and you have a cash value of $3,500 at the end of the first year.

Subtract $3,500 from $5,000 to get your net cost for that year: $1,500.

If you can no longer pay premiums, you can cancel the policy and get the $3,500 payout in cash value, leaving you a net cost of $1,500 for that year.

The Savings Component

An ancillary benefit of whole life insurance is the opportunity to build savings within the policy through the cash value account.

What if the transmission goes out on your car when you’re in between jobs? A whole life insurance with guaranteed cash value growth and non-guaranteed dividend growth may give you the opportunity to borrow against your whole life insurance policy to cover unexpected expenses. When your financial situation improves, you can pay that loan back to your policy at an interest rate that’s lower than one offered by a personal loan or credit card. You don’t need any approval — just verification that you have enough cash value to sustain the loan.

Or, say you can’t afford your whole life insurance rates this year. It may be possible to use a policy loan to pay your premium. Some policies even have a built-in feature that automatically uses cash value to pay the premium if a renewal payment doesn’t arrive.

Regardless of how you choose to look at your whole life coverage, make sure you consider your budget and understand what kind of flexibility is available for when life gets in the way.

Whole life insurance has many riders available that add value at the cost of adding to your premium payment. Typical riders include disability waiver of premium, long-term care, term insurance and paid-up additions.

Disability Waiver of Premium

This allows the insurance company to pay your premium for you if you meet its definition of disability. Most often, this definition includes total disability, meaning you are unable to work.

Long-Term Care

You can add a long-term care rider or a chronic illness rider to many whole life insurance policies. Some policies have a chronic illness rider that is automatically included at no charge, while the long-term care rider would come with an added cost. While the coverage may sound the same, there are some differences between long-term care and chronic illness, so it’s important to read the definitions of the riders and review an outline of coverage before adding these to your policy.

Term Insurance

You can often add a term insurance rider to your whole life insurance policy. There are generally two different types of term insurance riders you can add: The first is for the insured person, and the second is for an additional insured person. This means you may be able to buy a whole life insurance policy with a 10-year term rider with you as the insured on one policy. If available on your policy, you may also be able to add term coverage for your spouse or a business partner on the policy. These riders add to your premium but can be valuable when designing your long-term insurance plan. It may also be a cost-effective way to cover short-term coverage needs, such as the 20-year period before your child graduates from college.

Paid-Up Additions

This rider allows you to buy mini life insurance policies that accumulate cash value more rapidly than your base life insurance policy. It is often the most misunderstood rider on a whole life policy. For example, you can add this rider to your whole policy with a payment of $1,000 to the rider. It may buy $1,500 of additional life insurance and provide $950 of additional cash value as well. This cash value also continues to have guaranteed growth and non-guaranteed dividend growth similar to your base policy.

Whole life insurance has the potential to be an important part of your investment strategy. With a whole life insurance policy, you can enjoy guaranteed cash value growth and non-guaranteed cash value growth through dividends. When you add the paid-up additions rider on top of this, you will tend to see your overall cash value grow more quickly.

As this cash value becomes more and more significant, you can borrow against your cash value to supplement unexpected expenses, taxes in retirement, supplemental income and more.

In these strategies, you are often taking a policy loan. While you aren’t required to pay the interest on your policy each year, choosing not to pay your policy interest could put you in a difficult position over time.

Whole life insurance offers benefits, such as guaranteed cash value growth, non-guaranteed dividend growth, the ability to borrow from your cash value, valuable riders and more.

You will receive the best pricing on a whole life insurance policy when you are young and healthy, and your life insurance plan will work the best for you when you take a long-term view. Not everyone has the same personal financial goals, but making sure the premiums match your budget and allow you to meet your personal planning needs for your and your dependents is also very important.

Whole life insurance is a great choice for those looking for long-term protection. It may also provide flexibility during unexpected events in your life. However, whole life insurance can be costly. Keep in mind that not everyone needs life insurance; for example, people with few financial obligations might simply set aside money to help their loved ones take care of their final expenses.

Working closely with an experienced financial advisor can help you determine your coverage needs. You can then work with a life insurance agent to help you compare quotes to arrive at the type of policy that precisely fits your needs. In general, requesting life insurance quotes from a few companies helps ensure that you’re getting the best available deal.

Scott Karstens is an accomplished insurance and financial services veteran, having worked inthe industry since 2001. He is currently the President of NFG Brokerage, but he is becoming best known as the Founder and CEO of both Broker Backoffice and his new direct-to-consumer insurance platform called Quote Bot, which offers user-friendly solutions for life insurance planning.

Ryan Lasker is a financial writer and editor with bylines in Morning Brew, The Motley Fool, and several more. As a certified public accountant, he leverages his technical expertise in personal finance and tax to fuel his passion for teaching financial literacy. When he’s not writing, editing or working in a spreadsheet, he’s biking the D.C. trails or reading.