It often takes five to 10 years to accumulate enough cash value to borrow against your life insurance policy. The exact length of time depends on the structure of your policy, including your premiums and rate of return. Once you have met the minimum cash value requirement, the loan approval process is typically quick and easy.
02
What Is Private Mortgage Insurance and How Does It Work? (2024 Guide)
When shopping for mortgages, you might discover many lenders no longer require a traditional 20% down payment. That said, lenders still want some assurance you can and will repay your mortgage loan. That’s why, in most instances, lenders require you to carry private mortgage insurance if you are unwilling or unable to make a large down payment.
Key TakeawaysPrivate mortgage insurance protects your lender in case you do not repay your mortgage loan.You generally need to pay PMI when you have a down payment of less than 20%, although there are some exceptions.PMI doesn’t protect you in any way; it’s for the lender’s benefit.You can remove PMI from your loan once you meet certain stipulations.
What Is Private Mortgage Insurance?
Historically, lenders have required a 20% down payment to underwrite a mortgage, which has been a barrier to homeownership for many families. To make owning a home more accessible, lenders and government entities have created different types of low-down-payment mortgages, including FHA loans, Freddie Mac Home Possible loans and even conventional mortgages that require less money down.
However, mortgage loans with a low down payment put lenders at risk. If you stop making your mortgage payments shortly after closing, and you’ve only put down 3% to 5% of the home’s value in cash, your bank stands to lose a lot of money. To mitigate that risk, it will charge a premium to you in the form of private mortgage insurance. PMI is typically added to your monthly mortgage payment.
Most mortgages with down payments of less than 20% come with PMI. That said, there are several exceptions to this rule. VA loans and physician mortgage loans do not require PMI. USDA loans don’t technically have PMI, but they charge a guarantee fee instead. While FHA loans also don’t technically have PMI, they do require a mortgage insurance premium that consists of an upfront and monthly premium.Who Benefits From PMI?
Unlike most forms of insurance where the insured is protected from loss, private mortgage insurance protects the lender against the event that you do not repay your mortgage and it has to foreclose. It does not benefit you at all. If you fall behind on your mortgage, PMI will not protect you against foreclosure or from damage to your credit for missed payments.
That said, PMI reassures the lender that your mortgage is a risk worth taking on, even though you lack a 20% down payment. And the extra cost might be well worth paying.
“When purchasing a home, leveraging PMI may allow you to put significantly less in a down payment, which is one of the largest obstacles to homeownership, especially for first-time homebuyers,” said Scott Bridges, senior managing director and chief consumer direct lending production officer at Pennymac. “It may also be worth paying PMI when the overall payment of the mortgage (including the PMI) is still giving you worthwhile monthly savings.”
Although PMI represents an extra cost, it might allow you to qualify for or afford a mortgage that you wouldn’t otherwise be able to.How Much Does PMI Cost?
The average cost of PMI is between 0.46% and 1.5% of your loan’s value each year, but this can vary between loans. Like other types of insurance, private mortgage insurance is an underwritten policy that varies based on the needs and qualifications of the insured.
“The entity that issues PMI is a privately owned insurance company, just like with auto and life insurance policies. When determining how much to charge for a loan’s PMI, the insurance company will aggregate as much data as possible to make sure they charge an appropriate premium — one that stays competitive but also covers the lender’s risk,” said Josh Mettle, division president and mortgage advisor of NEO Home Loans.
Here are a few data points companies use to determine how much PMI you’ll pay on your loan.Your home’s loan-to-value ratio: The more money you put down on a home, the less risk the lender assumes, so the lower your PMI charges will be.Your credit score: Your creditworthiness can increase or decrease the risk of your mortgage — and, by extension, your PMI.The number of borrowers: “Lenders and private mortgage insurance companies have seen that loans with two borrowers are less likely to default,” said Mettle. “If one borrower loses a job, the other’s income will assure that the mortgage still gets paid.” Thus, you might have a higher PMI premium as a single borrower.Your debt-to-income (DTI) ratio: When you carry high amounts of debt, your lender might require higher PMI payments than if you had a low DTI ratio.Your loan terms: Adjustable-rate mortgages and those with terms of 20 years or more will require higher PMI than fixed-rate mortgages with shorter terms.
So, if you and your partner had credit scores of 800 and took out a 15-year mortgage with an 85% LTV ratio, you might only pay between 0.14% and 0.16% PMI. However, if you had a credit score of 660 and took out a 30-year mortgage by yourself with a 95% LTV ratio, your PMI would be much higher, between 0.72% and 0.96%. On a $400,000 loan, this equates to about $600 per year in the first example and between $2,880 and $3,840 per year in the second.How Can I Get Rid of PMI?
There are a couple of ways to get rid of PMI. The easiest way is to stay current on your mortgage payments and wait until your loan-to-value (LTV) ratio reaches 78% or lower. At this point, your loan servicer must automatically terminate your PMI. The lender must also cancel your PMI once you are halfway through your mortgage, even if you haven’t reached the 78% LTV threshold. (This is an unlikely scenario unless your home greatly decreases in value, as you’d likely reach the 78% LTV threshold well before halfway through the loan.)
However, once you reach an 80% LTV ratio, you can request that your lender cancel your PMI. You can reach the 80% benchmark through mortgage payments or because your home value appreciated, and you now have more than 20% equity in the property based on its new market value. For the latter option, you’ll need to have an appraisal to prove that the house is worth more now than when you bought it.
To get your PMI canceled, you’ll have to send a request to your lender in writing. Make sure that you have a solid history of on-time payments and that the unpaid principal on your loan is low enough for you to qualify.How To Calculate Your Private Mortgage Insurance Payment
To get an idea of how much PMI you’ll be paying on your loan, you can look up the private mortgage insurance company’s rate card. There are only a handful of private mortgage insurance companies operating in the U.S., so ask your lender which one it uses and look up its rate card online.
The rate card is a matrix that takes your LTV ratio, loan term and credit score to give you a base percentage of the loan value that you’ll pay in PMI. That rate moves up or down based on additional factors (listed on the lower half of the rate card), such as whether you have a co-borrower and your DTI ratio.Types of Private Mortgage Insurance
Even though lenders are the insured parties on these policies, they have an incentive to create flexible PMI options to appeal to their customers. In the end, you can use your PMI payment as one of the deciding factors on which lender to choose.
Here is a run-down of the most common types of PMI you’ll encounter.Borrower-paid: Most PMI falls into this category. The premium is calculated as a percentage of your loan balance, then divided into monthly payments which are tacked onto your mortgage payment.Lender-paid: In this scenario, the lender pays but usually compensates for it with a higher interest rate. The main downside to this is that you can’t change the interest rate once you reach an LTV ratio of 80% as you can with borrower-paid PMI.Single-premium: With single-premium PMI, you pay the total PMI premium in a lump sum at closing. Lenders often offer discounts for paying the PMI upfront, but if you sell your house or pay down your mortgage early, you usually don’t get any of your PMI refunded.Split-premium: This hybrid type of PMI blends the advantages of borrower-paid monthly charges with those of a single-premium payment. You pay some PMI upfront, which reduces (but does not eliminate) monthly PMI payments. Opting for this type of PMI payment can be especially helpful if your debt-to-income ratio is on the high end. By paying down some of your PMI initially, you can keep your DTI ratio low enough to qualify for the mortgage without paying everything upfront.
The Bottom Line
While having one more fee added to your mortgage payment each month might feel like a pain, private mortgage insurance has increased access to homeownership for many. In exchange for a lower down payment, you pay a premium each month so you can own your home and build equity. Fortunately, PMI isn’t a mortgage-long sentence, as you can cancel it once you have 20% equity in your home.
To understand the costs and requirements of PMI for your specific mortgage, make sure to speak with your mortgage loan officer or other lending professional.FAQ: Private Mortgage Insurance What is the difference between PMI and MIP?
MIP stands for mortgage insurance premium, a required charge with all FHA loans. It involves an upfront cost, which is part of your closing costs, as well as an ongoing monthly payment. Unlike private mortgage insurance, MIP is unaffected by your credit score and is only slightly more if you put less than 5% down.Does PMI go away after 20% equity?
Your lender will automatically terminate your PMI after you have 22% equity (or a 78% LTV ratio) in your home. However, you can request that your lender drop the PMI after you’ve reached 20% equity in your home.Can I write off PMI on my taxes?
While PMI used to be tax deductible, the legislation that allowed this expired in 2021. Congress could change this in the future.How can I remove PMI from my existing mortgage?
To remove PMI from your mortgage payment, you must send your request to your lender in writing. Your lender is legally required to remove your PMI as long as you’ve reached 20% equity in your home, you’re current on your mortgage payments and there aren’t any other liens on your home.
*Data accurate at time of publication
03
Best Whole Life Insurance of September 2024
Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate life insurance products to write unbiased product reviews.
The right life insurance for you will meet your needs at a price you’re willing to pay. If the term life insurance isn’t covering you adequately, you may want to consider a whole life policy, often referred to as permanent life insurance.
You’ll have to jump through more hoops to qualify for whole life insurance, such as medical exams and premium payments. However, your policy will never expire and may come with additional benefits such as cash value. Best Whole Life Insurance of 2024
Get Life Insurance Quotes
Compare affordable life insurance options with Policygenius.Compare the Best Whole Life Insurance Companies
The best whole life insurance is a subsection of the best life insurance that not only provides money to your loved ones when you pass away, but also plays a major part in your financial life. As such, to determine our top picks for whole life insurance policies, we looked at how well these policies can support you during your life and your loved ones after you pass away.
Here are the best whole life insurance companies of 2024.Best whole life insurance for customer satisfactionState Farm Life Insurance
State Farm Life Insurance continues to lead the way in customer satisfaction. Customers typically hold auto, home, and other insurance policies with multi-policy discounts. Life insurance agents with State Farm can only quote its company policies. But they have the training to apply all available discounts to be as aggressive as possible with policy premiums.
Like many other companies, State Farm now offers “living benefits” in the event of illness or injury. Whole life options include a single premium, premiums payable to age 100, and premiums payable to an agreed-upon point. Buyers can discuss options with a licensed life insurance agent.State Farm agents can quote with all applicable discounts and customized benefitsSingle premium plans and premiums payable for a set time are availableLife insurance customers can take out loans from their policy, and State Farm offers living benefits
Read our State Farm life insurance review.Best whole life insurance for seniorsPrudential Life Insurance
Prudential Life Insurance is known for its superior financial stability (and that extends to the company’s other insurance products, as well). The Prudential VUL Protector (and the Pruco Life of New Jersey VUL Protector plan) offers specialized life insurance planning for seniors.
Premiums are fixed, and Prudential provides a lower risk profile on this plan to minimize potential losses. With less aggressive investments, buyers won’t see the significant gains associated with higher-risk investment vehicles.Coverage is specialized for senior applicants with a high likelihood of acceptanceLow-risk investment vehicles to minimize lossesFixed premiums over the entirety of your life insurance policy
Read our Prudential life insurance review.Best whole life insurance for accelerated death benefitsColumbus Life Insurance
Columbus Life Insurance remains a top competitor in life insurance overall. More companies now offer accelerated death benefits, sometimes called living benefits. Columbus remains on the cutting edge.
Buyers can pull money for immediate medical bills, long-term care, and end-of-life expenses before they pass away. Competitors frequently use a discounted death benefit, which offers confusing data for the average consumer. So it’s hard to know what impact an early withdrawal would have on your death benefit. Columbus simplifies the process with the lien method. It makes it easier for the average life insurance investor to understand the impact of withdrawals on long-term financial planning.
Columbus Life customers enjoy various life insurance plans supplemented with plenty of riders. Base premiums are highly affordable, and riders allow policy customization to find each buyer’s best life insurance products. Some customers choose whole life products up front, but Columbus Life enables qualified applicants to apply to convert term life insurance policies to whole policies up to initial expiration date.Accelerated life insurance benefits available for long-term disability or extreme illnessColumbus uses the lien method instead of the discounted death benefitPlenty of riders available to customize policies
Best whole life insurance for customer serviceNew York Life Insurance
New York Life Insurance offers policies with payouts going into the millions. Many life insurance plans are designed for investment purposes allowing buyers to withdraw money on a set schedule. Expected payout and penalties are laid out up front, and sales agents are knowledgeable and friendly.
Buyers looking to maintain a significant death benefit for their beneficiaries can take out loans against the life insurance balance. While interest may apply, penalties will not. Qualified New York Life insurance agents can guide you through different life insurance options to find the plan that meets your needs.Extensively trained insurance agents are there to answer any questions you have about New York LifeHigh-value life insurance plans available for financial planningLoan options to preserve higher death benefits while using existing funds as needed
Read our New York life insurance review.Best whole life insurance for military members USAA Life Insurance
USAA Life Insurance offers $400,000 in coverage with the servicemember’s group life insurance (SGLI) policy, available to eligible military members in the major branches and reserves. Due to deployment, traditional life insurance companies may not offer policy options for military members. USAA specializes in serving active duty military members, and it provides additional life insurance options for veterans.
USAA underwriters consider factors like age, health, and lifestyle, and medical exams are involved. However, it takes away many of the common barriers military members face, even when being deployed.Active-duty service members can use it to supplement SGLIAvailable for a diverse range of military members and veteransApplicants may still be required to undergo medical exams
Read our USAA life insurance review.Best whole life insurance for no medical examMutual of Omaha Life Insurance
Mutual of Omaha Life Insurance is known, above all else, for its financial stability. It offers various plans and riders, including no-exam life insurance plans. Some policies are as small as $2,000 for applicants between 50 and 75. Life insurance policies max out at $25,000 for healthy applicants looking to avoid a medical exam.
Once approved, there is a two-year waiting period for no medical exam life insurance policies with Mutual of Omaha. If policyholders die during those two years, Mutual of Omaha will pay out 110% of the premiums paid to date. The company closes most claims on the same business day for qualifying claims.No medical exam policies are available, with payouts up to $25,000Available for applicants up to 85 except in New York, where the age limit is 75Two-year waiting period for full benefits
Read our Mutual of Omaha life insurance review.Best whole life insurance for investingAllianz Life Insurance
Allianz Life Insurance offers high-value plans for tax-free payouts and aggressive investments. Many applicants use Allianz life insurance policies to supplement 401(k)s and other retirement investment vehicles. Some estimates suggest qualified applicants could increase their income by up to 20%. In addition, buyers can add riders to customize life insurance plans.
Allianz is among a few companies offering life insurance policies for foreign nationals with H-1B visas.Million-dollar policy limits for qualified applicantsStrong growth and investment optionsPlans available for foreign nationals with H-1B visas
Read our Allianz life insurance review.Best whole life insurance for people with HIVGuardian Life Insurance
Guardian Life Insurance offers unique policies for high-risk groups, including HIV patients. Due to medical innovations, undetectable cases of HIV are on the rise. The long-term health issues and early deaths of patients with HIV are lower than ever before, but many insurers are still hesitant to issue life insurance policies to HIV patients.
Applicants should be between 20 and 60 years old and in good health. Guardian Life also requires accepted applicants to be on antiretroviral therapy for a minimum of two years with promising lab results. While an HIV diagnosis is acceptable for Guardian Life insurance policies, applicants cannot have any AIDS-defining illnesses. Because of its thorough underwriting process, Guardian offers generous policies with reasonable premiums for qualified applicants.Specialized plans available for patients with HIVApplicants must be under the care of an HIV doctor and on retroviral therapy for at least two yearsApplicants cannot have AIDS-defining illnesses
Read our Guardian life insurance review.Types of Whole Life InsuranceNon-Participating Whole Life
Non-participating whole life insurance is what you may normally envision of when you think about whole life insurance. It has fixed premiums and death benefits with a predictable cash value growth trajectory. It’s the most straightforward option as a kind of “set it and forget it” life insurance policy.Participating Whole Life
In contrast with non-participating whole life insurance, this type of policy requires more involvement from the policyholder. Policyholders can use the accumulated cash value for a number of purposes, such as earning dividends to increase your death benefit or offsetting premiums. These policies are often more expensive and complicated. You may want to look elsewhere if you don’t want to spend a lot of time managing your life insurance policy.Limited-Pay Whole Life
While traditional whole life insurance has you pay premiums to maintain your policy until you pass away, limited-pay whole life has you make payments for a specific period, usually 10, 20, or 30 years. Once the period has ended, you no longer have to pay premiums, but your policy still remains active. However, you’ll have to pay higher premiums during this period than you would for a traditional whole life policy.How to Choose a Whole Life Insurance Policy
With many riders and options available, life insurance options are better than ever. Buyers enjoy more types of life insurance, competitive life insurance rates, and much more.Policy options
You’ll need to find a company that offers the type of whole life policy you need, be it participating, non-participating, or limited-pay. This will depend on your goals and your needs from your policy. You’ll also want to keep any desired riders in mind, as some companies may not offer exactly what you’re looking for.Cash value growth
Similar to policy type, you should also look at your options for cash value. You should see what your insurance company allows you to use your cash value for and how much you’ll accrue. Obtain quotes
The best way to find life insurance is to collect quotes from as many life insurance companies as you can to understand what you’ll pay with each policy. You can use life insurance aggregators like Policygenius to compare multiple quotes side-by-side. You should be prepared to answer an extensive list of questions related to your current health status, your medical history, and your family’s medical history. You may also have to answer questions related to your financial health and driving history.Customer service
The last thing you want is your family having to fight with an insurance company after your death. You can review customer reviews on sites like Trustpilot and the Better Business Bureau to see how responsive a company’s customer service team is and how easy it is to receive payouts. Work with an expert
Working with a trusted life insurance agent can help you make the right decision for. Insurance professionals can help you set parameters that make sense for your search and compare prices with benefits. As a result, qualified insurance agents can get consumers affordable pricing and ensure greater customer satisfaction.Best Whole Life Insurance FAQs
A bare-bones life insurance policy with no additional riders might be inexpensive, but it will also have limited coverage. Adding extra coverage for disability or missed payments may cost more now, but suitable riders can save you money and protect your investment later on.
Whole life insurance policies can be used for investment purposes, retirement, sudden illness or injury, and more. A life insurance agent can help you set up a plan that meets your needs. You then pay the agreed-upon premiums, and the policy provides coverage for your entire life.
Some of the best life insurance companies offer whole life insurance or term life insurance with no medical exams required. However, insurers may still inquire about your medical history and review other medical records. These policies generally offer lower benefits, and successful applicants are usually younger and healthier.
You can cash out your whole life insurance if the policy has cash value, like permanent life insurance. You can borrow against or take funds from your policy, or completely surrender it and cash out. However, surrendering the policy means losing your life insurance coverage, so it’s generally not advisable.
The best whole life insurance policies are offered by companies such as State Farm, Prudential, and New York Life. The best option for you will depend on the features you’re looking for, such as an accelerated death benefit or the ability to bypass a medical exam.Why You Should Trust Us: How We Reviewed the Best Whole Life Insurance
Life insurance comes in many shapes and forms, and whole life isn’t always the right option. It depends on your goals, your current finances, and other factors. We base our reviews on crucial factors to help consumers determine which life insurance plan is right for them.Price: The insurance premium often overshadows other factors when deciding what life insurance you need. Cheap life insurance has appeal now, but it doesn’t always get you the coverage you need. We look at affordability as part of a cost and benefit analysis.Coverage: How much coverage can you qualify for? Will it cover the death benefits you want for family or other beneficiaries? Will it meet your investment goals? Applicants seeking death benefits to cover funeral costs have different expectations than those looking to live comfortably in retirement. We also look at unique products like those for HIV patients, seniors, foreign nationals, and more.Performance: What kind of gains can you expect? We look at the risk profile and average financial gains over the policy’s lifespan.Payouts: A whole life policy will pay out upon death or earlier based on what’s written in the policy documents. We examine the claims process, average processing time, and payment rate.
Read Business Insider’s life insurance rating methodology for all the details on how we rate insurance companies and build these guides.
Lina Roby
Insurance Editor, LIA, MLOLina Roby (she/her) was a Personal Finance Insurance editor at Insider. She covered pet, travel, auto, and other common insurance products. She is also a licensed property & casualty insurance agent. Her goal is to help readers make informed decisions for all their insurance needs and plan for the unexpected, especially in a constantly evolving insurance marketplace. As a licensed insurance agent, she worked closely with clients and insurance carriers to quote and bind homeowners, auto, liability, and other insurance plans for personal and business. As a licensed mortgage loan originator, she was also able to more effectively quote and bind homeowners insurance policies meeting mortgage lender requirements. With a love for writing, she has also assisted with marketing for her local insurance marketplace. Read more Read less
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