Life Insurance Consultant
In the permanent insurance world, the two main types of policies that accumulate a cash value are Whole Life and Indexed Universal Life. Both policies come with guaranteed death benefits and have similar features, riders, and availability. However, the main difference is in the way the cash value builds inside the policy.
In a participating Whole Life policy, the cash value grows through a dividend paid by the insurance company. The rate credited is predetermined every year by the company holding the policy. This changes year to year. However, on illustrations, dividend rates are run showing consistent return at the same rate every year, often without any mid-points or other comparisons. In 1997, the average dividend rate of all Whole Life carriers was 8.0%. In 2025, it’s 5.18%. In 2022, the average dividend rate reached a low point of 4.63%. This means many Whole Life policies purchased in the last 10-30 years have had many years of dividend performance lower than initially illustrated when the client purchased the policy.
In an index policy, the company holding the policy buys options on an index, usually the S&P 500. In years when the index is up, the policy is credited with the gain, usually subject to a cap. On the years the index is down, the policy is credited either 0% or a very low fixed rate. This money is not actively in the market and can never go backwards- 0% is a worst-case scenario.
According to a large market study by Ibbotson, over any 20-year period, the S&P 500 achieved at least a 6% return 99.7% of the time. It achieved at least 6.5% 99.0% of the time, and 5.5% ROR 100% of the time. IULs currently illustrate between 5.5% and 6.5% at most companies, meaning long-term, the clients have a nearly 100% chance of receiving the illustrated rate of return.
Now is a great time to re-evaluate older Whole Life policies and compare them to the initial illustration when they were sold- we see a lot of opportunity to use the cash value and get clients out of under-performing Whole Life policies.
There are a lot of variables when it comes to understanding the way cash accumulates inside of life insurance policies. Give Wholehan Marketing a call with your cash value questions!