Is Whole Life Insurance Worth It? A Case Study

Thang Truong
Thang Truong
Updated on:

Whole life insurance is touted as a solid permanent life insurance option. It gives you the guaranteed death benefit and grows cash value. Where whole life differs from other permanent life insurance types is that it tends to grow cash value at a fixed rate determined by the insurance company. Meanwhile, certain universal life insurance types can be linked to markets or direct investments for greater potential cash growth. But when you compare whole life with these types of benefits, is whole life insurance worth it? As it turns out, not always. Below we’ll take a look at a case study to assess the matter.

The Case for Switching Away from a Whole Life Insurance Policy

Bob is 73 years old, retired and living in Florida. He has had a whole life insurance policy for 20 years with a face value of $250,000. He pays $2,200 a year in premiums. If he wants to keep the policy, he has to pay premiums until he passes away or reaches 100 years old. At age 73, the cash value account on his policy is $172,000. 

Now that he is retired and on a fixed income, he realizes that he might not be able to keep up with annual premium payments. He wants to explore what options he has if he doesn’t want to pay premiums anymore. Ideally, he wants to replace it with another policy that provides similar guaranteed lifelong permanent coverage and doesn’t require him to pay premiums. 

After shopping with 20+ carriers and comparing their 40+ Guaranteed Universal Life (GUL) and Indexed Universal Life (IUL) products, we found a much better product for him. We recommended Guaranteed Protection Universal Life, a GUL product, from Penn Mutual life insurance company, which will provide him with $279,000 guaranteed death benefit up to 100 years old, regardless how the cash value account performs. And he doesn’t need to pay premiums anymore. 

A major benefit with Guaranteed Protection Universal Life policy from Penn Mutual is that he doesn’t need to pay premiums anymore for the rest of his life. Premiums on plans like this are often paid out of the cash value of the account. In answering the question “Is whole life insurance worth it?”, not paying premiums is one of the most important points to consider. 

This GUL product is a great solution for Bob. He doesn’t need to pay any penny in premiums anymore, yet still have a guaranteed and permanent coverage of $279,000 for his family when he passes away, which is $29,000 more than his current whole life policy. 

This is the power of Guaranteed Universal Life Insurance (GUL) product, providing permanent and guaranteed coverage for less than half the cost of Whole life insurance premiums. 

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If Bob is a good at investing and confident that he can manage his investments from a variable universal life policy (VUL), he could have an even better option. We also found another option for him: VULOne policy from Lincoln Financial, a variable universal life insurance product. The plan will provide him with about a $309,000 guaranteed death benefit up to 100 years old.

How Does Whole Life and Variable Life Insurance Compare?

The main benefit of a variable account is that it can grow cash value based on direct investments. A whole life plan increases at a certain interest rate as set by the insurer, usually at 2% or 2.5%. In short, you can have larger gains on the cash value account of a variable universal policy. But if the markets perform poorly, the cash value account might suffer as well.

Unlike death benefit in whole life policy, the death benefit in variable universal life insurance policy is usually not guaranteed. However, VULOne product from Lincoln Financial is very special. It actually offers guaranteed death benefit until the insured reaches 100 years old. On top of that, if the investments in cash value account perform well, the actual death benefit will be greater. Regardless how investments perform, the death benefit is guaranteed at $309,000 or more.

To help compare the two plans at a glance, and answer the question “Is whole life insurance worth it?” below are how features of the accounts compare:

Whole LifeVariable Universal 
Permanent YesYes
Cash valueYesYes
Interest/investmentIncreases at a set schedule, usually at 2 or 2.5%Yes, from direct investment
Death benefitFixedFlexible
Cash growth, tax-freeYesYes
Access to funds while aliveYes, tends to be loan-basedYes, can be withdrawal and loans (lower interest rate)

As you can see, another benefit to variable over whole life is the premiums and death benefits are flexible on a variable account, but not on a whole life account. Also, access to cash in variable universal life policy is a lot easier. It tends to start with withdrawal and then move to loan, unlike in whole life, it is always by loans.     

>>MORE: How to Use Life Insurance in Retirement Planning – A Case Study

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What is the Difference Between Guaranteed vs. Non-Guaranteed Values?

So is whole life insurance worth it? Not when considering that the key benefit of a variable account over whole life is that it can accumulate value faster than a whole life plan, since growth is tied more directly to investments like stocks.  

This value doesn’t show up right away. The illustrated and guaranteed death benefit holds the same for the first 10 years of the policy. However, in the 11th year, things start to change. Here is the difference between the illustrated death benefit amounts and the guaranteed death benefit amounts across key years:

Year of PlanIllustrated Death Benefit
(or non-guaranteed)
Guaranteed Death Benefit

>>MORE: Why Is Whole Life Insurance Not Worth It?

How does Cash Value Account Work Within the Variable Universal Policy?

The non-guaranteed cash value account (or also called net base accumulation value) also shows directly how the variable life policy increases in value:

Year of PlanNet Base Accumulation Value

However, this is an estimation and not a guaranteed cash value. One benefit of a whole life plan is that it often has a guaranteed cash value, despite being much less.

But over the course of 25 years, between the ages of 74 and 98, the variable policy’s net base accumulation value increased a total of $327,556. That value alone is a little under double the $172,000 cash value in the whole life policy Bob had. Keep in mind, this is without having to pay premiums. 

>>MORE: Whole Life Insurance Cash Value: Everything You Need To Know

A Look at the Illustration of the Variable Universal Life Policy (VULOne by Lincoln Financial)

To get a look at how the policy works right off the bat, here are the values of the VULOne policy from the illustration. Lincoln Financial uses an estimated investment growth (or interest rate) of 8% for its policy’s illustration

YearAgeAnnual  Premium OutlayNet Base Accumulation ValueSurrender ValueIllustrated Death BenefitGuaranteed Death Benefit

It is obvious that this variable universal policy is far better than the whole life insurance policy that Bob had and that requires him to continue paying $2,200 a year until he passes away or reaches 100 years old just to have an guaranteed death benefit of $250,000. The whole life policy also provides a much less cash value account compare to this variable universal life insurance.

If you have a whole life insurance and want to consider replacing it with another permanent policy that will provide you with more death benefit, more cash value account, and a much lower premium, do not hesitate to contact us. We will shop around with 30+ carriers and their 90+ permanent products to find you the best permanent life policy to replace your expensive whole life insurance policy.

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>>MORE: Is Whole Life Insurance a Good Investment?

Final Thoughts

In summary, switching from a whole life plan to this variable VULOne policy from Lincoln Financial means getting around $309,000 in a guaranteed death benefit vs. the only $250,000 death benefit from the whole life plan. Between the ages of 40 and 72, Bob built $172,000 in cash value on the whole life plan. Meanwhile, in 25 years of the variable plan, the estimated accumulation value went up by a total of $327,556. And, of course, Bob no longer has to directly pay premiums on the variable plan, whereas he paid $2,200 per year on his whole life plan. So is whole life insurance worth it? Not in this case.

Thang Truong
Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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