Whole life insurance is for those looking for lifetime protection with added benefits. It offers people an important way to save for the future, helping you to be prepared for whatever lies ahead. With Whole Life policies, the cash value of your policy grows tax deferred – which means you can use it whenever you need to, whether for a new home, college tuition, or an income stream in retirement1. Dividends provide an opportunity for the cash value to grow more, although they are not guaranteed.

Whole Life insurance is changing. Late last year, Congress passed the Consolidated Appropriations Act, 2021, that combined stimulus relief for the COVID-19 pandemic with appropriations to fund the federal government for the 2021 federal fiscal year.

In addition, the bill changed the interest rates used in Internal Revenue Code (IRC) section 7702 and section 7702A. These interest rates help define life insurance and applicable funding limits to maintain preferential tax treatment within various life insurance products. These changes are highly technical, which is why we have put together this list to help you understand how new insurance policies will be effected.

1.    What are whole life, universal life and term life insurance?

There are several major forms of life insurance, term life, whole life,  and  universal life insurance. Term policies are issued for a given period of time – for example ten, 20 or 30 years – and if you die during the term, your beneficiaries receive the death benefit. However, if you outlive the term period, the policy expires and no benefits are paid.

Whole life insurance, as you may have guessed, lasts for your whole life. Given the longevity of the protection, the premiums are considerably more expensive compared to term insurance, however, your premiums contribute to cash value that grows the life of the policy. The cash value grows tax-deferred, and the death benefit will be distributed free of federal income taxes. Although dividends are not guaranteed, New York Life has paid dividends to eligible whole life policyowners for 167 consecutive years.

Universal life insurance and variable universal life (VUL) insurance policies allow you flexibility on the timing and amount of premiums, within limits. With universal life insurance, clients can customize the protection (including insurance amount, length of coverage, and premiums) to best meet their needs. With VUL, premiums are invested in investment options which hold underlying investments in stocks, bonds and other investments. The return and risk potential are higher.

2.    What is IRC Section 7702?

IRC Section 7702 provides a definition of life insurance contracts that must be satisfied for federal tax purposes. To meet these requirements, a contract must be a life insurance contract under applicable law (generally, state law) and must satisfy one of two actuarial tests that impose limitations on the amount of premiums paid into the contract and/or the amount of cash value that can accumulate relative to the level of death benefit protection. These limitations are based on complex actuarial calculations for determining the present value of  future death benefits. IRC Section 7702 also sets forth certain assumptions for defining these actuarial values, including the use of minimum interest rates.

3.    Why is IRC Section 7702 changing?

The minimum interest rates set forward in Section 7702 were set in 1984, and the world has changed a lot since then. The Federal Funds Rate in 1984 was 10.23%, but because market interest rates have been steadily declining for the last 30 or so years, the rates of return for life insurance companies have become substantially lower than was originally foreseen. This has made designing products for whole life insurance increasingly challenging.  Changes to IRC Section 7702 will not only improve products for insurers, they will also create a number of benefits for policy holders, including increased guaranteed cash values and greater flexibility to design customized solutions.

4.   Did New York Life support this change in law?

Yes.  New York Life and our lead trade association, the American Council of Life Insurers (ACLI), both advocated for this change.  The new law enhances our ability to develop life products into the future, even during record low interest rate environments, allowing us to expand our suite of solutions and meet a wider array of consumer needs.

5.    What’s going to change across the industry?

All major life insurance carriers throughout the industry will be implementing new whole life product offerings in the fall.

  •   For whole life products, the new law defines the changes insurers can make to the guaranteed cash value interest rate embedded in their whole life contracts2.
  • The repricing will only impact new policies, not existing policies.
  • The law has enabled life insurers to be able to use a guaranteed cash value interest rate as low as 2 percent.

6.   What’s going to change at New York Life?

On November 6, New York Life will begin accepting whole life insurance policy applications for enhanced products, which will include Whole Life, Custom Whole Life, Custom Survivorship Whole Life, and Employee Whole Life.

Despite modest premium increases across most of the portfolio, the value proposition for consumers will be enhanced through:

  • Increased early duration guaranteed cash values
  • A lower cost of accessing policy values via loans in the current rate environment
  • Increased funding limits providing enhanced flexibility to agents and their clients to design customized solutions

The largest increases to premiums will occur on the shortest premium-payment periods (15 years or fewer). These payment periods will see premium increases up to 25 percent in key target markets.  There will be no change in pricing on in-force policies issued prior to November 6.

But at New York Life, our next suite of products used a 3 percent guaranteed cash value interest rate. We strongly believe this decision strikes the appropriate balance of continuing to provide compelling consumer value while maintaining the financial strength that backs our promises for decades to come.

7.    What’s the key takeaway?

This is a great opportunity to analyze your life insurance policy and make sure it’s right for you. How? By focusing on the overall value that your whole life or universal policy is offering.

Whole life insurance offers:

  • Death benefit protection
  • Tax-deferred  accumulated cash value growth
  • A consistent history of dividend payouts, although dividends are not guaranteed

Variable universal life insurance offers:

  • Long-term protection with the opportunity for cash value to grow based on market performance of the underlying investment options
  • A guaranteed death benefit, which is typically income-tax free
  • Market risk due to fluctuating cash values

These are assets that build value over time and help you to leave a legacy to your loved ones. Learn more about whole life insurance or find a financial professional in your area to answer any questions you still have.


1Accessing the cash value of a Whole Life policy through surrenders or loans will reduce the available cash surrender value and the death benefit.

2Any guarantees of a policy are based on the claims-paying ability of the issuer.

The Oregon Policy Form Number for New York Life Whole Life is ICC18217-50P (4/18)

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Media contact
Kevin Maher
New York Life Insurance Company
(212) 576-6955

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