20 pay life insurance is a unique type of whole life insurance. With 20 pay life insurance, you’ll have the benefits of a permanent life policy, like coverage that lasts the rest of your life and a growing cash value account.
What makes 20 pay life insurance different is that you only pay premiums for 20 years. Once your policy is fully paid up, you won’t have any more costs, but your life insurance will last until you die.
What is 20 pay life insurance?
20 pay life insurance is a form of whole life insurance — a type of permanent coverage that offers a guaranteed death benefit and a cash value component that will grow interest over time.
Whole life insurance is usually a good option if you have a high net worth and are looking to use life insurance to diversify your investment portfolio, or if you have long-term financial obligations or coverage needs, like dependents who require lifelong care. If you’re already maximizing your contributions to tax-advantaged accounts like a Roth IRA or a 401(k) and are seeking another investment option, whole life insurance might work for you.
With a 20 pay whole life insurance policy, you’ll make premium payments for 20 years to pay for the coverage. After that, the policy will remain in effect for the rest of your life and you won’t have to make any additional payments.
20 pay life insurance vs. traditional whole life insurance
The biggest difference between 20 pay life insurance and traditional whole life insurance is how your premium payments are set up. With the 20 pay policy, you’ll only pay premiums for the first 20 years that the policy is active. This is also known as a limited pay policy.
With a traditional whole life policy, you’ll have to make premium payments for the rest of your life to keep the policy active. Because the premium payments are spread out over your entire lifetime, each traditional whole life premium is usually much cheaper than a 20 pay life insurance premium.
With both 20 pay and traditional whole life insurance policies, the benefits are the same. As long as you make your payments, you’ll be entitled to the death benefit your whole life.
Comparing 20 pay life insurance vs. traditional whole life insurance
20 pay life insurance | Traditional whole life insurance | |
Coverage duration | For life | For life |
Payment period | 20 years | For life |
Premiums | Higher, but for 20 years | Lower, but for life |
Cash value | Grows as you pay premiums and with interest, higher in the beginning | Grows as you pay premiums and with interest, lower in the beginning |
How cash value in a 20 pay life policy works
Both 20 pay and traditional whole life policies have cash value. Your policy’s cash value will grow as you make payments and will increase with interest. As an added benefit, you’ll be able to take out loans against this cash value.
But knowing which policy will yield a better cash value for you can be hard to determine.
With a 20 pay policy, your premiums are set and you may live the full 20 years and make all your premium payments. Since part of your premium will go toward your cash value, you can estimate pretty closely what the cash value on your policy will be.
With a traditional whole life policy, the amount of premiums you pay and the cash value you accumulate will heavily depend on when you die. The longer you live, the more premiums you’ll pay, but the higher your cash value will be.
Example of 20 pay life insurance
Let’s say you apply for whole life insurance when you’re 50 years old. When you apply, the insurer will calculate your life expectancy in order to set your rates — in other words, how much you’ll pay for your policy.
If you have no medical issues and don’t smoke, the insurance company could reasonably expect you to live to age 80 and offer you its best rates.
If you get a 20 pay policy, you’ll pay premiums for the first 20 years. Your cash value will be higher than a similar traditional whole life policy in the beginning, but once the 20 years end, you’ll stop contributing to the cash value and rely only on interest to keep increasing it.
On the other hand, if you get a traditional whole life policy, during the first 20 years, you’ll pay lower premiums and contribute less to the cash value. However, you’ll continue paying premiums and contributing to the cash value for the rest of your life, so you could end up contributing more to the cash value over the course of your lifetime, especially if you live longer than the insurance company’s estimation.
However, the difference in cash value potential isn’t usually significant enough to impact your decision to get a 20 pay or a traditional whole life insurance. The main benefit of a 20 pay policy is the convenience of paying up a permanent life policy in a set period of time.
How does 20 pay life insurance work?
When you get a 20 pay policy, your coverage will begin right away. To keep the policy active, you’ll pay premiums for the first 20 years of your coverage.
After that, you won’t have to make any additional payments, but your policy will be good for the rest of your life. When you die, your beneficiary will get the death benefit.
Whole life policies — including 20 pay policies – usually include a cash value component, which you’ll be able to take a loan against once enough value has been built up.
Because you’ll pay more premiums earlier with a 20 pay policy, your cash value will be higher sooner, compared to a whole life policy.
How much does 20 pay life insurance cost?
A 30-year-old man with no health issues could get a $500,000 20 pay whole life insurance policy for $946 per month over 20 years. A 30-year-old woman could expect to pay $862 per month over the same period of time for the same policy.
20 pay life insurance rates
Age | Gender | $500,000 coverage amount | $1 million coverage amount | $10 million coverage amount |
|---|---|---|---|---|
20 | Female | $649 | $1,270 | $12,702 |
Male | $720 | $1,414 | $14,138 | |
30 | Female | $862 | $1,698 | $16,982 |
Male | $946 | $1,861 | $18,609 | |
40 | Female | $1,137 | $2,239 | $22,385 |
Male | $1,247 | $2,455 | $24,551 | |
50 | Female | $1,516 | $2,995 | $29,954 |
Male | $1,642 | $3,241 | $32,408 | |
60 | Female | $2,099 | $4,158 | $41,577 |
Male | $2,289 | $4,532 | $45,318 |
Methodology: Sample monthly rates are calculated for male and female non-smokers at a Preferred Plus health classification, obtaining $250,000, $500,000, $1,000,000, and $10,000,000 20 pay whole life insurance policies through MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies available in all states. Rate illustration valid as of 01/01/2024.
Your rates will depend on your age, gender, overall health profile, and the type of policy you’re buying. If you want to get a personalized quote for your specific situation, you can connect with a policycentral agent. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.
Pros of 20 pay life insurance
Guaranteed level premiums. With a 20 pay policy, you know exactly what your premiums will be and how long they’ll last.
Guaranteed lifetime coverage. As long as you make all your premium payments on schedule, you’ll enjoy the peace of mind of securing the death benefit. You won’t lose this benefit unless you cancel or cash out your policy.
Tax-deferred cash value accumulation. A 20 pay policy will quickly develop cash value. The cash value associated with your policy will grow with interest, and you won’t be responsible to pay taxes on any gains until you cash out the policy — but whole life policies with a more traditional payment structure also offer this benefit.
Policy dividends. Some 20 pay policies offer dividends, so over time you could receive funds from the insurance company. If you’re eligible to receive these funds, you can use them to help pay your premiums, take them as cash, or leave the money with your insurer to accumulate more interest, like a high yield savings account. But yet again, some whole life policies with more standard payments may also offer dividends.
Living benefits. Most 20 pay policies come with living benefits. With living benefits, you’ll be eligible to receive a portion of the death benefit while you’re still living. To do this, you’ll have to experience a qualifying event like being diagnosed with a terminal illness.
Cons of 20 pay life insurance
Pricey premiums. Whole life insurance is already significantly more expensive than term life, but 20 pay’s unique payment structure means that the premiums you’ll pay will be even higher — you’ll need a lot of cash up front to cover the full cost of your policy.
Higher chances to miss a payment. Keeping up with payments from a 20 pay policy might be harder due to its excessive cost — and if you fail to keep your policy in good standing, you’ll lose your coverage.
Limited cash value potential. With a traditional whole life policy, you’ll make payments and build up the cash value for the rest of your life — not just over a set period. If you live longer than expected, you could pay more in premiums but also build up a bigger cash value than you would with a 20 pay policy.
Who is 20 pay life insurance for?
10 pay is best for people who need the benefits of whole life insurance and can afford the higher premiums of a 10 pay policy.
Whole life insurance can be beneficial for you if:
You need a lifelong death benefit.
You have an adult dependent.
You can benefit from having a cash value account.
A whole life policy can help you handle estate taxes.
How to buy 20 pay life insurance
If you’re considering 20 pay life insurance, the first thing you should do is connect with a licensed insurance broker. policycentral has a team of agents ready to answer your questions and help you get the best policy available to meet your financial needs.
Once you decide what type of policy you need, your agent will help you complete the required application documents, and guide you through the process to get an offer back from the insurance company.
Here are the steps:
Connect with an insurance agent to get started on your application, get quotes, and find the best company for you based on your profile.
Apply for life insurance. Your agent will walk you through the application process and let you know if you’ll have to take a medical exam.
Go through underwriting, which is the process during which the life insurance company will evaluate your application details, health information, and lifestyle to determine how much you’ll pay for your policy.
Sign your policy and pay your first premium. After underwriting, the insurance company will extend you a final offer, which is when you’ll know your final rate. You’ll then sign your policy and pay your first premium for your coverage to be active.
Alternatives to 20-pay life insurance
Here are other coverage options if 20 pay is not right for you.
Traditional whole life insurance offers the same benefits of a 20 pay policy, but the payment schedule is different. With a traditional whole life policy, you’ll be making payments for the rest of your life, but they’ll be lower than what you could expect to pay with a 20 pay policy.
10 pay life insurance is another limited pay option, but in this case you’d pay for your policy in full in only 10 years. While the potential of paying for your entire policy in half the time might be enticing, the premiums could also be twice as expensive — or even more.
Term life insurance is the most affordable type of life insurance in almost every situation. It only lasts as long as you need it and doesn’t have any complex tax restrictions and regulations. It doesn’t accumulate a cash value, but if you’re just considering life insurance for income replacement to protect your loved ones in your absence, term life insurance may be your best bet.
Final expense life insurance offers a small amount of coverage to help with end-of-life and funeral expenses — and its premiums are comparatively lower than a 20 pay policies, too. If all you need is a policy to cover funeral costs, final expense insurance might be right for you.
→ Learn about the main differences between term and whole life insurance
