Are Whole Life Premiums Really Guaranteed?

To answer that question we need to understand the difference between Whole Life when it first emerged in the marketplace and Whole Life as we know it today. “First Generation” Whole Life was a truly guaranteed, rather simple product. An agent could calculate the guaranteed premiums, cash value and death benefit using a rate book and slide rule. Whole Life products today operate entirely differently with a good majority of contracts being sold with term insurance blends to keep the premiums lower. The idea here is that dividends credited to the policy would purchase additional amounts of “paid up” insurance and this additional insurance would replace the term portions over time. This is of course dependent on policies achieving or exceeding the illustrated dividend rates at policy issue which unfortunately hasn’t been the case. Dividend rates, along with interest rates in general have been decreasing annually and continue to do so even into 2018. When the dividends credited don’t meet the original projections, the term portion of the contract can increase in cost which results in increased premiums to policy owners; not exactly a guaranteed contract. In addition to potentially costly term blends, many Whole Life policies sold today are illustrated on short pay scenarios. Just like term blended policies, these short pay contracts are dependent on dividend crediting. Premiums may be required past the premium duration shown in the sold illustration if dividends don’t pan out, which they haven’t. Policyowners may be oblivious to these facts and discontinue premiums regardless which can result in insurers pulling premiums from accrued cash value in the form of loans. These loans come complete with compounding interest and if left unchecked can implode a policy and cause disastrous tax consequences.