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What Is Another Name for Interest Sensitive Whole Life Insurance?
What is another name for interest-sensitive whole life insurance? There are several you may see online, including “current assumption whole life” or “fixed premium universal life.” They’re not all the same thing – but they all refer to a particular type of life insurance that gives you more ability to earn cash value over time.
Want to find out how to get lifelong coverage that earns money for you over time? We'll explain everything below!
What Is Interest-Sensitive Whole Life Insurance?
Interest-Sensitive Whole Life (ISWL) is a type of whole life insurance. As with other types of whole life insurance, it offers these features and benefits:
- Coverage for the rest of your life (unlike a term policy)
- Monthly payments that will never increase
- Guaranteed death benefit paid out to your beneficiary(ies)
- Cash value component that acts like a tax-deferred savings feature and grows over time
- Guaranteed growth for your cash value based on an interest rate set when you buy the policy
Over time, as your cash value grows, you have the option to use it in several ways:
- Use your cash value to pay premiums
- Take loans against the cash value
- Withdraw cash value to use any way you like
Now, all of this is exactly the same in a standard whole life policy. But here’s what makes ISWL different:
- Offers a minimum guaranteed rate of interest for your cash value growth PLUS
- Credits your cash value with a current (usually higher) rate of interest set by the insurer
The whole point is to give you cash value that grows faster than it would in a standard whole life policy. So if you’re looking for lifelong coverage and faster cash value growth, ISWL could be right for you!
Want to talk to a real person about your insurance needs? Give us a call at (800) 521-7873 or email us at info@lifequote.com.
You Get More Cash Value with Interest-Sensitive Policies
Since the cash value is what makes this type of policy special, let’s take a closer look.
An interest-sensitive policy has two ways for your cash value to grow:
- The minimum guaranteed rate of interest. Your cash value will never earn less than this amount. Insurers set their own minimum guaranteed rate, so there is no one-size-fits-all standard rate we can provide you with. With this type of coverage, it’s best to call an agent for a quote so we can show you the different minimum guarantees available.
- The additional (higher) interest rate offered by the insurer. Insurance companies manage their money by a combination of investments and cash reserves. And when interest rates are high, their cash reserves earn more money. With an interest-sensitive policy, the insurer passes on a little of those extra earnings to you. Long story short, when interest rates are high, you’ll earn more cash value. When interest rates are low, you may not earn any extra cash value, but you’re still covered by the policy’s minimum guaranteed rate.
Think of interest-sensitive policies in term of the saying, “a rising tide lifts all boats.” When the insurance company does well (through its investments and interest earnings), it kicks a little back to you. But when it doesn’t do well, nothing bad is going to happen to your cash value – you’re protected from any downside by your minimum guarantee.
Does Interest Sensitive Whole Life Insurance Affect Your Taxes?
You may be wondering how cash value accumulation affects your taxes. In the short run, there’s no affect at all.
- 100% income tax-free death benefit. When you pass away and your loved ones file a claim with your insurer, they won’t have to pay any income tax on the money they get. Zero. Nada. Zilch. It doesn’t matter whether they get $10,000 or $1,000,000. They won’t owe a penny to the IRS. (There’s only one type of policy where your beneficiaries could owe income tax, and unless you’re storing millions in your policy by overpaying your premiums, you don’t have that type of policy and don’t have to worry about this.)
- Tax-deferred growth for your cash value account. Your cash value grows tax-deferred. That means it can grow faster since it’s not taxed until much later. Later, if you want to withdraw from your cash value, you would only owe tax if you withdraw more than you’ve paid into the policy up to that point. Let’s say you’ve paid $10,000 into your policy, and have $20,000 of cash value. If you withdraw $10,000, you owe zero tax because the IRS sees that as money you’ve paid into the policy. If you withdraw $15,000, the IRS would view $5,000 of that money as income, since it’s more than you’ve paid into the policy, and you would owe income tax on it.
Tax-deferred growth is a great benefit of permanent life insurance. It uses the same strategy that retirement accounts like 401(k)s and IRAs use to grow wealth over time.
Want to talk to a real person about your insurance needs? Give us a call at (800) 521-7873 or email us at info@lifequote.com.
What Is Another Name for Interest Sensitive Whole Life Insurance?
As we mentioned above, you may see references to similar policies called “current assumption whole life” or “fixed premium universal life.”
Current Assumption Whole Life | Indeterminate Premium Whole Life
These types of whole life policies are similar to an interest-sensitive policy, but have differences in terms of the monthly payment and, sometimes, the death benefit amounts. In a typical whole life policy, both of those are locked in when you buy the policy – they will not change.
But with a current assumption or indeterminate premium whole life policy, those elements will be recalculated at specific points during the policy. Some insurers will recalculate yearly, every couple years, or every five years. At that time, your monthly payment might change based on the current cost of insurance. Some insurers may give you options to reduce your coverage, but that’s mostly reserved for the policy type we’ll cover below (universal life).
Fixed Premium Universal Life
Any policy type with “universal” in the name is going to be interest-sensitive. In this case, “interest sensitive” means the exact same thing we described above – your cash value earns a flat, guaranteed rate of interest with the chance to earn more based on higher interest rates that become periodically available if economic conditions are right.
However, with a traditional universal policy, you don’t have set monthly payment amounts. You have the flexibility to change those as needed, as long as you pay the minimum to keep your policy active. So a universal life policy with fixed premiums ends up being almost the same thing as an interest sensitive whole life policy. That’s why you’ll see them confused online a lot. One key difference is that universal policies let you change the amount of the death benefit over time, which whole life policies do not allow. So if you like the idea of an interest-sensitive policy, you just need to decide whether you want flexible payments and death benefit (universal life) or you want to lock those in place (whole life). That decision will determine which policy type is right for you.
Interested in Lifelong Coverage with Cash Value Growth?
There are a lot of reasons to buy life insurance, but let’s start with the most important: someone depends on you financially.
If you have kids, a spouse, parents, or other loved ones who depend on what you earn, life insurance can replace that income if anything happens to you. And with a permanent policy, you never have to worry about outliving a particular term.
As we discussed, the cash value feature of whole life insurance is a great way to save a little cash for later that you can access via withdrawals and policy loans. With an interest sensitive whole life insurance policy, you can earn more cash value in high-interest markets and protect yourself against loss when interest rates fall.
Want to talk to a real person about your insurance needs? That’s what we love to do. Tell us what you want, and we’ll help you choose the policy type and insurer that have the best fit for your family. Give us a call at (800) 521-7873 or email us at info@lifequote.com.
