Life and health insurance policy concept idea. Finance and insurance.

What Is the Typical Yield of a Life Insurance Plan?

You have insurance for just about every facet of your life, but what about your life itself? Life insurance coverage is a great safety net to have, even from a young age, to afford some financial peace of mind to your beneficiaries upon your passing. While term-life policies commonly afford a cheaper premium, whole-life insurance policies are considered by some to be a better investment financially, as there is actually a yield to this type of insurance policy.

Permanent Life Insurance


If you are looking to explore a range of life insurance options, you may want to turn to the iSelect life insurance marketplace to understand the options that are at your disposal. Yes, it’s true that whole-life coverage, also known as permanent or universal coverage, can cost more in terms of monthly premiums, but comparison services will show that you can actually get a return of premium for this type of coverage over your life span.

When you purchase whole coverage, the rate of premiums remains the same under all circumstances, and the beneficiary on your coverage will still get a lump-sum payout after your death. Since the length of a policy often spans decades and the insurer knows that a payout is inevitable, premiums are higher. If you are single or have financially stable family members who do not rely on your money, your whole-life policies could be expensive and unnecessary.

Calculating Rate of Return


It’s a common belief that the cash value on a whole life insurance policy increases substantially over time. However, this is a rare offering from an insurance company. You have to think of this type of coverage as an entire investment as opposed to a traditional policy. To understand the rate of return and yield on a whole-life policy, check how the policy is projected to perform over the next few decades. That includes the average annual and year-by-year rate of long-term return. This rate can vary greatly, so it’s impossible to predict how much you’ll profit in the long run. However, there’s no high degree of risk in getting a payout.

The amount of life insurance coverage you get factors into what it will yield in the long run. This is determined by calculating the policy’s expected yearly growth, also known as internal rate of return (IRR). However, if you have a whole-life policy, determining the rate of return over a period of 30 years or longer can be confusing and inconsistent. An analyst or financial planner usually analyzes a policy’s projected performance over time, comparing it to other coverage and figuring out an accurate estimated IRR. Mortality rate changes and fund management can determine how much money could grow in the near future.

Dividend Payouts


While whole-life insurance companies will not disclose how the rate of return is determined, they may offer illustrations of how your policy is projected to perform for future results. This includes information on the premium for the policy, how much you’ve paid so far, your current death benefit, and the cash surrender value of canceling the coverage. Insurance companies will also lay out what’s effectively an investment opportunity at different yearly markers throughout the length of the policy.

These projections are often lengthy, but as the insured, you should look at an insurer’s dividend payout history. If a company has never generated dividends under 5.5 percent or 5.25 percent in the past century, it has a strong financial position. This is a good sign for your coverage or if you extend to spouse coverage on a whole-life policy. Be sure to take the time to do the research and discover the policies that can be afforded to you and your loved ones.