How Does 20 Pay Whole Life Insurance Work?
With 20-pay whole life insurance, you make payments for 20 years, which then puts the policy in a “paid-up” status. At this point, the insurer will not require additional money from you, and the policy stays active for the remainder of your life.
This is in sharp contrast to a standard whole life insurance policy, where the payments will last indefinitely. It’s important to note that because the insurer can collect premiums for only 20 years, a 20-pay whole life policy will cost about 50%-100% more than a standard whole life policy.
All types of whole life insurance last forever, build cash value, and have fixed premiums. Whenever you die, the insurance company will pay out the full death benefit (tax-free) to your beneficiaries.
| Policy Features | 20-Pay Whole Life | Standard Whole Life |
|---|---|---|
| How long do payments last | 20 years | Forever |
| Fixed premiums | Yes | Yes |
| How long does coverage last | Forever | Forever |
| Builds cash value | Yes | Yes |
| Can borrow from the cash value at any time | Yes | Yes |
| Pays a cash surrender value upon choosing to cancel the coverage | Yes | Yes |
| Affordability | Higher cost since payments stop after 20 years | Lowest cost since payments are indefinite |
| Sample monthly price for a $100,000 coverage amount for a 55-year-old female | $321 | $219 |
| Death benefit guaranteed never to decrease | Yes | Yes |
| Pays a tax-free cash death benefit | Yes | Yes |
Pros And Cons Of 20-Pay Whole Life Insurance
- Payments stop after 20 years.
- Coverage lasts forever, even though payments don’t.
- Premiums will never increase.
- Some policies can pay dividends.
- Many policies offer various living benefits, such as an accelerated death benefit riderAccelerated Death Benefit Rider
A free rider that allows the policy owner to access some or all of the death benefit while still alive. The trigger for this rider will be when a doctor diagnoses the insured with a terminal illness and declares that there is a life expectancy of 12 months or less. Whatever amount you "accelerate" will subsequently be deducted from the death benefit payout upon the death of the insured. For example, if you have a $100,000 policy and you accelerate $25,000, the insurer will only pay out the remaining $75,000 when you die.. - Great for retirement years (if you pay it off before retirement) since you don’t have to make payments during a period of life when your income is reduced.
- If you’re in moderate to good health, the total amount you’ll pay over 20 years will likely be less than what you would pay with a traditional policy.
- The cash value grows tax-deferred.
- Higher monthly payments than for non-limited-pay whole life policies.
- You could have a higher death benefit for the same premium if you opted for a standard whole life plan.
- Not many insurers offer 20-pay whole life options.
- If you surrender the policy before it reaches paid-up status, you’ll lose a lot more money than with a typical whole life policy.
- The cash value growth slows after you reach the paid-up status.
- You cannot change from a 20-pay to a standard whole life policy.
- 20-year life insurance policies are not available after age 75.
How The Cash Value Works In A 20 Pay Life Policy
20-pay whole life policies build cash value just like traditional whole life policies. Given that your premiums are higher, the policy will accumulate cash value much faster. However, once the policy becomes paid up, the cash value will continue to grow, though at a lower rate since you’re not making payments.
At any point in the policy, you’re still entitled to:
- Policy loans: You’re able to withdraw from the cash value account and spend the money as you see fit. You don’t have to pay back the money you’ve loaned. However, if you don’t, the outstanding loan can (and often does) reduce the death benefit.
- Surrender value: If you formally cancel the policy, the insurer will issue a check for the policy’s current cash value.
How Much Does A 20-Pay Whole Life Policy Cost?
Below are sample 20-pay whole life insurance quotes for various coverage amounts.
20 Pay Vs 10 Pay Vs Single Premium
If you’re seeking a limited-pay whole life policy that will one day become paid up, you have options other than a 20-pay policy.
| Policy Features | 20-Pay Whole Life | 10-Pay Whole Life | Single Premium Whole Life |
|---|---|---|---|
| Coverage length | Forever | Forever | Forever |
| Fixed premiums | Yes | Yes | Yes |
| How long payments last | 20 years | 10 years | One large lump sum payment |
| Affordability | Very high cost | High cost | Highest cost |
| Builds cash value | Yes | Yes | Yes |
| Policy loans | Yes | Yes | Yes |
| Potential for dividends | Yes | Yes | Yes |
20 Pay Whole Life Cost Compared To 10 Pay And Traditional Whole Life
Below are sample quotes (for $100,000 in coverage) to give you a sense of how much a 20-pay life insurance policy costs compared to a 10-pay and traditional whole life policies.
20 Pay Whole Vs Other Types Of Life Insurance
There are many types of life insurance. Choosing the right policy type to meet your needs is critically important. The cost of a life insurance policy is important. However, it’s just one of many factors to consider when choosing the type of policy you’ll need.
| Policy Features | 20-Pay Whole Life | Traditional Whole Life | Term Life | Universal Life |
|---|---|---|---|---|
| Coverage length | Forever | Forever | 10-40 years | Forever |
| How long payments last | 20 years | Forever | For duration of the term | Forever |
| Affordability | Very high cost | High cost | Lowest cost | High to moderate cost |
| Builds cash value | Yes | Yes | No | Yes |
| Policy loans | Yes | Yes | No | Yes |
| Cash back if you cancel coverage | Yes | Yes | No | Yes |
| Potential for dividends | Yes | Yes | No | Yes |
Is 20 Pay Whole Life Right For You?
20 pay whole life insurance may be right for you if you want lifelong coverage that builds cash value and don’t mind paying a higher premium to limit the payment period. For example, if you need a policy to cover your final expenses, a 20-pay plan would be great.
Once paid off, you would have a certain peace of mind knowing it will never be lost and will pay out to cover your end-of-life expenses.
Another scenario where a 20-pay life policy is suitable is when you have an adult dependent who relies on your income. You could pay off a 20-year policy and then know with certainty that the policy will never be lost because you can’t afford it.
A 10-pay or single-premium whole life policy would be even more ideal in these circumstances if you have the budget for it.
Frequently Asked Questions
Yes, you can borrow from the cash value in a 20-pay policy before and after it’s paid up. Keep in mind that whole life policies generally don’t accrue any cash value during the first two years.
20 pay policy officers do have a surrender value since they accumulate cash value. If you surrender the policy, the insurer will issue a check equal to the current cash value.
20 pay policies cost more because the insurer can only collect premiums for 20 years. In contrast, a standard whole life policy has no defined date when the payments will stop. Essentially, the insurer is counting on collecting payments over a longer period (more than 20 years), so that the premiums are lower than those for 20-pay policies.
20 pay and standard whole life policies have identical underwriting requirements. One is not harder to qualify for than the other.
- Nationally licensed life insurance agent with over 16 years of experience.
- Personal annual production that puts him in the top .001% out of all life insurance agents in the nation.
Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
