Permanent life insurance policies that offer cash value can be a good way to supplement income or fund a trust after you pass. Some folks want the option to withdraw or borrow against the cash value, or use it to pay their premiums.
We analyzed cash value life insurance policies to find the best companies using data from Veralytic, an independent life insurance research company. Each of these companies earn our top rating. They appear in alphabetical order in this list.
Why we picked it: Lincoln Financial was among the best in terms of cost competitiveness, financial strength and pricing stability. Low internal policy costs means more premium will go toward your policy potentially allowing for greater growth of cash values over time.
Potential drawbacks: Only about half of Lincoln Financial’s cash value products have exceptional historical performance. And some of its newer indexed universal life insurance products have had much higher internal costs and a greater risk than other products.
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Mutual of Omaha
Why we picked it: Mutual of Omaha earns a top ranking due to its excellent cost competitiveness, highly rated historical performance and financial strength. Low internal policy costs means more premium will go toward your policy and greater growth of cash values over time.
Potential drawbacks: Mutual of Omaha has more limited access to cash value accounts compared to other top competitors. The company also has a greater reliance on unknown reinsurance companies, which can pose a higher risk of premium increases for large face amount policies.
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Why we picked it: The majority of Pacific Life’s products have lower and more stable costs compared to top competitors. The company has had an excellent performance of investments that have led to cash value gains.
Potential drawbacks: Some of the newer universal life insurance products have higher internal costs compared to the company’s other products. Pacific Life is also subject to a lawsuit regarding the reliability of policy illustrations for its newer universal life insurance policies. Indexed universal life insurance is linked to market performance over time and can be complex. The complexity of the product is something to consider if you’re buying indexed universal life insurance.
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Why we picked it: Protective ranks above other insurers in terms of cost competitiveness with 96 percent of its cash value products having lower internal policy costs. The company also boasts a good performance of investments underlying cash value.
Potential drawbacks: Policyholders generally have less access to cash value compared to some insurers and the company’s financial strength ratings haven’t always been as its competitors.
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Why we picked it: Prudential has very competitive prices, and its policy illustrations have been consistent with actual historical performance nearly 95 percent of the time.
Potential drawbacks: The company has not been willing to disclose performance expectations for its whole life products. Prudential only has an average performance of investments underlying cash values for most of its products.
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Why we picked it: Excellent pricing stability and good cost competitiveness makes Transamerica one of our top picks. Policyholders also have good access to cash value.
Potential drawbacks: Transamerica’s historical performance of assets underlying cash values have been lower than some competitors and the company has been sued for increasing costs charged inside certain policies.
Compare quotes from Transamerica with other carriers via Policygenius.com.
Understanding Life Insurance
Simply put, life insurance is a legally binding agreement or contract between you—the policyholder—and an insurer. The agreement guarantees that the insurer will pay a lump sum to the beneficiaries after the policyholder passes away in exchange for premium payments. This lump sum payment is also referred to as the death benefit.
The primary purpose of purchasing a life insurance policy is to protect your loved ones financially after you die. So, if you have dependents that rely on your financial support, you can ensure they will have financial security when you’re no longer around. For example, if you have children and a spouse who relies on your income to maintain their lifestyle, a life insurance policy can help them pay for the mortgage, debts and other living expenses. It can also help pay for future costs such as higher education expenses.
Purchasing a life insurance policy ensures your family won’t have to uproot and has resources to pay for their needs in your absence.
What Does Life Insurance Cover?
Almost all deaths resulting from illness, accidents or other causes such as old age are covered under a life insurance policy. Some examples can include:
- Traffic accidents
- Diseases such as cancer or influenza
- Unintentional fatal injuries such as slipping and falling
However, if you purchase accidental death or dismemberment coverage, your policy may only cover deaths resulting from accidents. This type of policy excludes other causes of death, such as illness or old age.
What Life Insurance Doesn’t Cover
For your beneficiaries to receive the death benefit, you must keep premium payments up-to-date. If you fail to do so and stop making payments, it could result in a policy lapse—meaning your beneficiaries won’t receive the lump sum payment.
Most insurers generally give policyholders a grace period that can fall between 30 and 31 days after the payment date. So, if you unintentionally miss a payment, your insurer might provide some flexibility before a policy lapses. Rules will vary from insurer to insurer, so check with your insurance company to verify payment requirements, so you don’t put your policy in jeopardy.
Another exclusion is something called the “suicide clause.” This clause stipulates that a life insurance policy won’t pay out a claim if the death resulted from suicide within the first two years of the contract enrollment. Deaths resulting from suicide after the two years pass are covered.
Additionally, life insurance companies may deny a claim if you provide false or inaccurate information on the application. This is because insurance companies use your life expectancy, also called mortality, to determine your rates and which underwriting class you fall into. Therefore, leaving out pertinent information such as medical conditions or dangerous hobbies (skydiving, base jumping, etc.) you participate in can misrepresent your actual life expectancy.
Types of Life Insurance
Term and permanent life insurance are two main types of life insurance. Your financial needs and budget will likely dictate the type of life insurance you choose. Here’s a breakdown of each.
Term Life Insurance
Just like it sounds, term life insurance protects your loved ones for a set term or length of time. For example, life insurance companies usually offer 10-, 15-, 20-, or 30-year terms. As long as you continue to pay premiums, your policy will pay out a death benefit to your beneficiaries if you die within the term. Conversely, your beneficiaries will not receive a lump sum payment if you live beyond the policy term.
Term life insurance policies make sense for those who have a particular financial obligation. For example, if you recently became a parent, a 20-year policy may provide financial support for your child until they can financially support themselves.
Permanent Life Insurance
Permanent life insurance provides lifetime coverage. So, regardless of when you pass away, your beneficiaries will receive a death benefit. It also has an accumulating cash value feature that can help create an asset used during your lifetime. However, since permanent life insurance protects you throughout your entire life and has a cash-building element, it can cost substantially more than term life insurance.
People who choose permanent life insurance usually have specific goals in mind, such as supporting dependents, funding a trust for heirs, or building cash value to supplement retirement savings.
There are two primary types of permanent life insurance: whole life insurance and universal life insurance.
Whole life insurance. Also known as ordinary life insurance, these policies come with a guaranteed death benefit. Additionally, the savings component grows based on a fixed rate of return.
Universal life insurance. This type of life insurance provides more flexibility than whole life by giving you the option to adjust your death benefit or premium payments over the policy’s life. In addition, the interest received on the savings element is determined by the type of universal life insurance policy you purchase. Types of universal life insurance include guaranteed universal, indexed universal or variable universal.
Do I Need Life Insurance?
If you have dependents that rely on you for financial support, life insurance is worth considering. If any of the following apply to your situation, you may want to purchase a policy to protect your loved ones.
- Income replacement. Your children, spouse or parents rely on your income to maintain their lifestyle.
- Fund a trust. You have a child with special needs that will need financial assistance for their entire life. You can use a life insurance policy to fund a trust, which will provide financial support after your passing.
- Take care of final expenses. A life insurance policy can pay for final expenses such as burial costs, debts or other medical costs.
- Leave a legacy to heirs. You want to leave a legacy behind to your heirs. A death benefit can provide an inheritance to your heirs even if you don’t have any assets to pass on.
- Contribute to charity. You want to leave a lump sum to a cause you care about.
- Build savings. You can access the cash component of permanent life insurance over the policy’s life (depending on policy terms). Therefore, funding a permanent life insurance policy can act as a forced savings plan for the future.
- Pay estate taxes. Life insurance benefits can assist your heirs in paying federal and state estate taxes. This way, your heirs can avoid liquidating assets to afford a hefty estate tax bill.
Determining The Best Life Insurance For Your Needs
Finding the right type of life insurance can almost seem impossible if you’re unsure what to look for. Seeking the guidance of a financial advisor or insurance agent can help you assess the policy suitable for your budget and goals.
Verify the financial strength of the insurer. Look for life insurance companies with strong financial ratings. A strong rating ensures the company will stay in business and pay out your death benefit claim. You can check ratings with independent rating agencies such as A.M. Best and Standard & Poor’s.
Find a policy that compliments your financial plan. Insurance is a crucial component of your financial plan since it protects against financial downsizing. A financial advisor can explain the options suitable for your needs.
Cost disclosures are a must when getting a quote for universal life. Quotes usually only include your premium costs, leaving out the internal costs of the policy, such as fees and the cost of insurance in the contract. So, when you request a quote, make sure to insist on seeing the expense page. This way, you can compare the actual cost of coverage.
You might not receive competitive pricing from every insurer. Because every insurance company uses a different formula to estimate rates, pricing can drastically vary by insurer and policy type. It’s also important to point out that cash value policy quotes may not include all costs in maintaining the policy. Therefore, you may end up paying significantly more than you originally anticipated.
How Much Life Insurance Do I Need?
Estimating the amount of life insurance you need is simple. Just follow these steps.
- First, add up all of the financial responsibilities you need to cover. Financial responsibilities should include your mortgage, income replacement for a certain number of years and other debts.
- Next, subtract your existing assets that your dependent can use toward your bills. Assets may include your savings accounts, investments or other life insurance policies.
- The sum of the two will help you determine the total amount of life insurance you need.
How to Get Life Insurance Quotes
Over half of Americans assume life insurance is three times more expensive than it is, according to the Life Insurance Barometer Report from LIMRA, a financial services research firm. Unfortunately, this assumption leaves many families underinsured and at risk of financial devastation if the main income-earning person passes away unexpectedly.
Instead of assuming you’re priced out of the life insurance market, try gathering quotes from several insurers to verify what you can afford. The best part is, quotes are free.
To identify the insurance companies that offer the best prices based on your age, health and coverage needs, reach out to experienced life insurance agents who can point you in the right direction.
The insurance companies will ask you personal questions about your age, health, driving record, dangerous hobbies such as skydiving and family medical history. Then, after collecting a few quotes and narrowing down your options to one, you can begin the formal application with the company you choose.
The formal application will consist of more in-depth questions about personal details and the terms of the policy you desire. Depending on the type of policy you select and the requirements of the insurer, you may have to complete a life insurance medical exam. You can usually take medical exams, at home, work or a local office.
The approval process period typically varies by insurance company and policy you select. For example, if you’re young (under age 60) and don’t have any medical conditions, some insurance companies may offer instant approval, if you qualify. At the same time, other insurance companies may go a more traditional route by requiring a medical exam. This underwriting process may take a month or more.
Is Life Insurance Worth It?
Only you will be able to determine if life insurance is worth it. However, if you have folks that rely on you for support and would suffer if you were to die, life insurance might be worth the money to ensure your loved ones don’t go without.
On the other hand, if no one would feel the financial impact of your absence, purchasing life insurance might not be useful. But if you think it could help the ones you love, getting a quote is likely worth the effort.
We analyzed 25 large life insurance companies that sell cash value life insurance. Companies that sell mostly term life insurance products were not included in this evaluation. Companies that are direct writers who sell directly to consumers or through their own exclusive agents were also excluded.
Data for the analysis was provided by Veralytic, a leading publisher of pricing and performance research and competitive rating for cash value life insurance products. Veralytic measures the competitiveness of each product against industry benchmarks to score each policy.
Each company was rated based on:
- Cost competitiveness (40% of score). This includes premiums and internal policy charges, such as fixed administration expenses and cash value-based wrap fees.
- Pricing stability (15% of score). This looks at pricing factors such as the cost of insurance, illustrated earnings rate on cash value and policy expenses, and determines if they appear to be reasonable and adequate, based on the company’s historical experience with pricing.
- Access to cash value (15% of score). This considers the liquidity of cash values and restrictions on policyholders accessing the account.
- Historical performance (15% of score). This looks at whether historical performance of the insurer’s investments that underlie policy account values are better than similar products.
- Financial strength (15% of score). This factors in the company’s financial strength ratings from four major ratings agencies.