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Whole life insurance companies: How to find the policy to best fit your needs

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There are a lot of reasons for buying whole life insurance in times like these: It provides permanent insurance protection. A life-long financial asset. Premiums are guaranteed to never go up.1 And its cash value is guaranteed to keep growing.2 In an unpredictable world, whole life insurance is one of the most stable purchases you can make. If you found this article, you probably know that already – but you might not realize this: when you buy this kind of policy, you’re starting a life-long relationship with an insurance company. So it makes sense to think about which whole life insurance company you want to work with. This article can help by telling you about:

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  • Key features of a whole life policy, and how they can vary

  • Questions to ask about a life insurance company

  • What you should know about the buying process

Key features of a whole life policy, and how they can vary from one insurer to another

Whole life insurance benefits include permanent insurance coverage along with a lifetime of financial and tax advantages.3 From the first day your policy is in effect, it will help protect your family from the financial consequences of unexpected death. Down the road, it can be used as an asset to help get you through a period of financial stress.4 Later still, it can be used to help make your retirement more comfortable or help pass assets on to the next generation. No matter which company you get your whole life policy from, it will provide three specific guarantees:

  • A guaranteed death benefit - The amount of money paid to your beneficiaries, income tax free, when you die is guaranteed to never decrease.

  • A guaranteed level premium - As long as you keep paying premiums, the policy will stay in effect and your payments are guaranteed to never go up.

  • A guaranteed cash value - The policy’s cash value component is contractually guaranteed to grow at a set rate each year. However, that rate can vary from one insurance company to the next.

How cash value grows

All whole life policies have a cash value component that is guaranteed to grow tax-deferred at a certain rate that varies by company. Certain insurers also provide options that allow growth to be calculated in different ways with the potential (but not certainty) of more upside. For example, Guardian offers eight different growth options5 including one choice that lets policyholders link a portion of their cash value to the S&P 500 Index6,7 to allow for greater growth – while still guaranteeing  the cash value will increase each year.

Some providers let policyholders earn dividends

Every whole life insurance policy has a cash value component, but they may not all pay dividends.8 Mutual life insurance companies are owned by their policyholders, so the cash value portion of their policies may earn annual dividends – a portion of the insurer’s profits. Dividends can help increase cash value beyond the guaranteed growth rate. While annual dividends are not guaranteed, Guardian has paid them every year since 1868.

Dividends can be used in different ways, but one of the most common options is to purchase paid-up additions (PUAs)9 : guaranteed permanent, paid-up life insurance. This can provide you with a growing asset and guaranteed death benefit. Over time, the compounding accumulation of PUAs can help to offset the effects of inflation.

Another one of the many whole life tax benefits includes the ability to withdraw dividend accumulations tax-advantaged, up to the policy basis (i.e., the sum of premiums paid to date). Other dividend options include:

  • Receive in cash

  • Reduce premium

  • Purchase additional term insurance

  • Accumulate with interest

  • Apply to outstanding policy loans

Cash value can be used throughout your life

Whichever method is used to build cash value, over time it can grow into a useful sum.10 All insurers let you use it in various ways: You can borrow against in a tax-advantaged way, or use it for premiums, resulting in savings each year in payments. There is also actual cash value that can be surrendered for a sum of money to help fund your retirement. Some providers will even let you use it to boost the death benefit, helping you to transfer assets to your heirs with fewer tax consequences.

Using the death benefit in different ways to achieve different goals

The insurance policy beneficiaries are usually family members, but they don’t have to be. If you own a business with partners, this insurance can be used to fund a buy-sell agreement: the partners are the named beneficiaries, and if you pass away the payout can be used to purchase your share of the company from your estate. Your beneficiary doesn’t even have to be a person: you can leave all or part of the benefit to an entity, such as a charitable cause.

Even if the benefit goes entirely to your family, you can also reallocate it to serve different purposes as circumstances change. For example, while your children are still at home you may choose to leave the entire amount to your spouse. Later in life as you’re planning your estate, you may decide to use the benefit as part of your estate tax strategy by allocating a portion of your death benefit directly to your children – or grandchildren.

Questions to ask about a whole life insurance company

Do they have a strong financial history?

When you’re buying a financial product with a payout that may be decades away, a long track record of financial strength11 is important. So consider looking at two things in an insurance company:

  1. How long the company has been in operation

  2. Their Financial Strength Ratings

Some life insurance providers have been around for decades, which may seem like a long time; Other life insurance companies have existed for generations (Guardian was founded over 160 years ago, in 1860). Such organizations have developed the institutional knowledge and experience to invest and manage assets for the long term, meeting obligations to their policyholders through economic downturns, global wars, and pandemics.

While that kind of history can and should provide reassurance, it’s important to remember that past performance does not guarantee future success. So you should also look at a company’s Financial Strength Ratings. These are current, objective measures of financial strength, provided by reliable independent sources such as A.M. Best, Fitch Ratings, Moody’s, and Standard and Poor ’s. For an example of the kinds of ratings to look for, here are Guardian’s Financial Strength Ratings:

Agency

Ratings*

Moody's Investors Service

Aa1 High Quality 2 of 21

A.M.Best Company

A++ Superior 1 of 15

Standard & Poor's

AA+ Very Strong 2 of 20

COMDEX**

99 out of 100

Are they a mutual company or a stock company?

Some insurance providers are public entities owned by shareholders. A mutual company – like Guardian – is owned by its policyholders. Some insurance companies also provide another, more tangible benefit: policyholders can be paid dividends, which helps build value. While annual dividends are not guaranteed, Guardian has paid them every year since 1868.

Do they offer different cash value growth options?

If you want more potential for growth, you should consider a provider that offers cash value growth options. For example, Guardian’s Index Participation Feature allows policyholders to allocate all or a portion of their cash value of paid-up additions to receive a dividend adjustment based on the movement of the S&P 500® Price Return Index, subject to a cap and a floor.

Do they have whole life options that work for your goals?

Whole life insurance can help fulfill a number of needs. If you’re older and looking for a policy as part of an estate strategy, you should consider looking for a company that issues policies for people your age. Concerned about long term growth of your asset? Look for a company that offers growth options. Want greater protection in the event of a disability? Consider looking for a Disability Income Rider that can provide a monthly benefit if you have a qualifying disability, along with a robust Waiver of Premium Rider12 to help fund your policy while you’re unable to earn income. Riders (i.e., optional policy provisions) can be an important tool for tailoring a policy to your needs, so consider an insurance company that offers a range of options.

Do they underwrite their own policies?

Some insurers issue their own policies, while others offer policies of many different companies. A whole life policy is an instrument that can help you reach your financial goals over the years – and you should consider how easy it is to communicate with the insurance companies you are considering.

Do they offer a full range of life insurance products?

Why should a company offer other kinds of life insurance? Because at some point in the purchase process, you may actually decide that a different type of policy may better meet your needs. For example, if you’d like more payment flexibility, a universal life insurance policy could be an option to consider : it offers permanent coverage and cash value, but the premiums are flexible: you can raise or lower your payments within certain limits.13 Or you may decide to start by getting a term policy with a conversion rider that allows you to convert to a whole life policy later on without having to get a new medical exam.

How the buying process works for whole life

You don’t just buy a whole life policy – you apply for it. There is an underwriting (risk assessment) procedure for every contract before it goes into effect, and insurers have slightly different standards, especially when it comes to issuing policies for smokers and people with underlying medical conditions (for example, Guardian offers coverage for people living with HIV). In any case, you will likely need to undergo a medical exam to verify your health status. Features, provisions, and costs also vary from one insurer to the next, your specific policy premiums can vary widely based on your coverage amount, age, health, lifestyle, gender and other factors such as optional riders.

The net result is that each whole life contract is a unique financial instrument tailored to the specific needs of the policyholder. You should consider speaking with an experienced financial professional who will listen to your needs and dig deep to learn more about your situation. They can help you evaluate how much coverage is right for you, then guide you through the various policies, riders and provisions that best fit your needs. How do you find such a professional? Ask a friend or colleague for a recommendation. Or, we can put you in touch with a Guardian professional who can provide you with a quote.

Frequently asked questions about whole life insurance providers

How do I know if whole life insurance is right or wrong for my needs?

The answer depends on your specific situation and personal preferences. It can be an especially powerful financial asset for people with young families who want permanent life insurance protection with a tax-efficient, guaranteed cash value component. Others use whole life primarily for their estate planning strategy. If your income is more variable, universal life could be an option to consider, because premiums are flexible within certain limits. If your budget is limited and you just want coverage for a limited number of years, term life could be an option to consider.

What is whole life insurance?

Whole life insurance is the simplest form of permanent life insurance coverage with the most guarantees. The premium remains the same for life and the death benefit is guaranteed – as long as you continue to pay premiums, the policy will stay in effect and a death benefit will be paid to your beneficiaries. There is also cash value that grows at a guaranteed rate and growth is tax-deferred. It can be borrowed against in a tax-advantaged way, used to pay premiums, or even surrendered for cash to help fund your retirement.

Which is better, whole life or term life?

The answer to this question depends on your situation. There are a lot of different ways to compare term vs. whole life insurance companies and policies. Both pay a death benefit to your family if you pass away but there are significant differences:

  • Whole life provides permanent, life-long coverage; term coverage is temporary and typically limited to 10, 15, 20 or 30 years at most.

  • Whole life provides a cash value component that is guaranteed to grow at given rate each year; term life is a “pure” insurance product with no cash value component.

  • The added cash value of a whole life policy – along with the guarantee that the insurer will eventually pay a death benefit – means that the cost is typically higher compared to a term policy.

Do all life insurance companies offer whole life insurance policies?

No. Some providers only offer term life insurance, which is a much simpler product with fewer guarantees and features. Other companies don’t issue their own whole life insurance policies; instead they offer policies from a variety of companies.

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  • Term vs. whole life insurance: Which is right for you?
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  • Whole life vs universal life insurance. What are the key similarities and differences?

1 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

2 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial professional and refer to your individual whole life policy illustration for more information.

3 Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

4 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

5 Riders may incur an additional cost or premium. Riders may not be available in all states.

6 S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market.

7 The Index Participation Feature (IPF) is a rider available with select Guardian participating whole life policies. With the new IPF, policyholders can now allocate between 0% and 100% of the cash value of paid-up additions (PUA) to the IPF each year. The IPF provides an adjustment to the dividend paid under the policy. This adjustment, subject to the cap rate (currently 10.5%) and floor (currently 4%), may be positive or negative based on the S&P 500 price return index performance. Adverse market performance can create negative dividend adjustments which may cause lower overall cash values than would otherwise have accrued had the IPF rider not been selected. While the adjustment provided by this rider is affected by the S&P 500 price return index, it does not participate in any stock or equity investment of the S&P 500 price return index.

The S&P 500 price return index is a product of S&P Dow Jones Indices LLC (“SPDJI”) and has been licensed for use by The Guardian Life Insurance Company of America (Guardian). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Guardian. The Index Participation Feature (“Product”) is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such Product nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 price return index. The cost of the IPF rider is currently 2% with a guaranteed rate of 3% on the IPF portion of the policy. Policy loans against, or withdrawals of, values allocated to the IPF could negatively impact rider performance. Selection of the IPF may restrict the use of certain dividend options.

8 Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors. The total dividend calculation includes mortality experience and expense management as well as investment results.

9 Paid-up Additions (PUA) are purchases of additional insurance (death benefit) that have a cash value. These purchases are made with dividends and/or a rider that allows the policyholder to pay an additional premium over and above the base premium. This creates the growth of death benefit and cash values in a participating whole life policy. Adding large amounts of paid-up additions may create a Modified Endowment Contract (MEC). A MEC is a type of life insurance contract that is subject to last-in-first-out (LIFO) ordinary income tax treatment, similar to distributions from an annuity. The distribution may also be subject to a 10% federal tax penalty on the gain portion of the policy if the owner is under age 59 ½. The death benefit is generally income tax free.

10 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial professional and refer to your individual whole life policy illustration for more information.

11 Financial information concerning Guardian as of December 31, 2021, on a statutory basis: Admitted Assets = $72.1 Billion; Liabilities = $63.5 Billion (including $51.8 Billion of Reserves); and Surplus = $8.6 Billion.

12 A Waiver of Premium rider waives the obligation for the policyholder to pay further premiums should he or she become totally disabled continuously for at least six months. This rider will incur an additional cost. See policy contract for additional details and requirements.

13 Universal Life Insurance may lapse prematurely due to inadequate funding (low or no premium), increase in cost of insurance rates as the insured grows older, and a low interest crediting rate. This does not apply to universal life policies which have a secondary guarantee, but if the secondary guarantee requirements are not met the policy will most likely lapse.

* Ratings as of 9/2022 and are subject to change. Source: Vital Signs and Third Party Rating Agencies. The ratings earned by Guardian do not apply to the investments issued by GIAC or distributed through PAS.

** Comdex is not a rating, but a composite of all ratings that a company has received from the major rating agencies. Comdex represents a company’s percentile standing, on a scale of 1 to 100 (with 100 being the best), in 2022 in relation to other companies that have been rated by the major agencies.