Whole life insurance is a type of permanent life insurance that doesn’t expire. No matter when you die, your loved ones will receive a guaranteed tax-free payout in exchange for your premium payments. Whole life also includes a tax-deferred savings account from which you can borrow cash. The cash value earns interest at a fixed rate set by the insurer.
How does whole life insurance work?
Whole life insurance offers a guaranteed death benefit no matter when you die, in addition to a living benefit called the cash value.
Whole life insurance never expires as long as you make your premium payments on time.
It pays out a guaranteed tax-free death benefit to your beneficiaries when you die.
The cost of your life insurance premiums remains the same throughout the duration of your policy.
In addition to the payout, whole life has a savings component, called the cash value, that earns interest at a fixed rate over time.
The interest rate is set by the insurer. A portion of your premiums is used to pay for your policy, and the rest goes toward building your cash value.
Once you’ve accumulated enough cash value, you can withdraw or borrow against it.
Any outstanding loans from the cash value you haven’t paid back by the time of your death are deducted from the death benefit your beneficiaries will receive.
It can take five to 10 years for a whole life policy to build significant cash value, depending on the type of whole life insurance you buy.
When you die, your beneficiaries only receive the death benefit. The cash value is reverted back to the insurance company.
Some whole life policies pay dividends. Called participating whole life insurance, these policies pay an annual bonus to policyholders if the insurance company generates profits.
The lack of expiration date and the accumulation of cash value make whole life policies significantly more expensive than a comparable term life policy, which doesn’t grow cash value and expires after a set term — usually, between 10 and 30 years.
Who should consider buying whole life insurance?
A traditional whole life policy can be a good fit for high-net-worth individuals and people who have long-term financial obligations.
High-net-worth individuals: High earners can use whole life insurance as an additional investment vehicle, especially if you’re already maximizing contributions to traditional investment accounts like a 401(k) or IRA. Whole life can also be used as a buffer against estate tax, as long as your estate is valued at less than $13.61 million. [1]
People with long-term financial obligations: If you have financial obligations that will last longer than 20 to 30 years — for example, lifelong dependent children, or if you expect to care for aging parents — whole life can ensure they’ll be cared for in the event of your death, no matter when it occurs.
What are the main pros & cons of whole life insurance?
Pros
Whole life insurance lasts your whole life. You don’t have to worry about your coverage expiring. This can be especially helpful if you have dependents that require lifelong care or if you have long-term financial obligations.
Whole life earns interest through its cash value component. This can be a good option 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.
You can use your policy’s cash value while you’re alive. Withdrawing money or taking out a loan from your cash value can be easier and less expensive than taking out a personal loan.
Cons
Whole life is significantly more expensive than term life. If you take out a whole life policy and then find you can’t afford to keep it, you risk leaving your family without financial protection.
With whole life, penalties can apply if you cancel your policy during the surrender period — but there’s no penalty for canceling term life insurance.
Whole life offers lower rates of return as an investment vehicle than other investment options.
Whole life is a riskier investment option. Tax-advantaged accounts like Roth IRAs, for example, don’t require you to fund them every year, so you have more flexibility. Whole life policies require you to continue paying premiums for your policy to remain active and for your cash value to accumulate.
You might reduce the death benefit your beneficiaries will receive upon your death if you don’t pay back any loans you took against your policy’s cash value.
Types of whole life insurance by payment method
There are several options to pay for whole life insurance. These include:
Level payments up to age 100. You pay set premiums on a monthly, quarterly, semi-annual, or annual basis until you reach age 100 — essentially, for the rest of your life. This is the most common type of whole life insurance payment.
Single premium. You pay the full cost of the policy in one lump-sum payment up front.
Limited pay. Instead of paying premiums for the rest of your life, you cover the full price of your policy on a limited payment schedule. Single pay, 10 pay, and 20 pay are all examples of limited pay whole life policies.
10 Pay. You cover the full cost of the policy over 10 years.
20 Pay. You cover the full cost of your policy over 20 years.
Paid up at age 65. You pay premiums on your policy until you reach age 65.
Modified whole life insurance. It offers lower premiums for a short time, usually the first two or three years of the policy, and higher premiums for the rest of your life. Modified whole life policies don’t cost less than a traditional whole life policy — you eventually make up for the initial lower payments with pricier premiums down the road.
How much does whole life insurance cost?
A 30-year-old non-smoking female in good health can expect to pay $415 for a whole life insurance policy with a $500,000 death benefit payout. A 30-year-old non-smoking male with a similar health profile can expect to pay $487 for a policy with the same coverage.
Average monthly whole life insurance rates
Age | Gender | $250,000 coverage amount | $500,000 coverage amount | $1 million coverage amount |
---|---|---|---|---|
20 | Female | $146.00 | $287.00 | $545.00 |
Male | $169.00 | $334.00 | $639.00 | |
30 | Female | $206.00 | $408.00 | $801.00 |
Male | $238.00 | $472.00 | $920.00 | |
40 | Female | $296.00 | $588.00 | $1,161.00 |
Male | $355.00 | $706.00 | $1,372.00 | |
50 | Female | $462.00 | $920.00 | $1,826.00 |
Male | $543.00 | $1,081.00 | $2,117.00 | |
60 | Female | $772.00 | $1,540.00 | $3,065.00 |
Male | $903.00 | $1,802.00 | $3,556.00 |
What factors affect your whole life insurance rates?
Whole life insurance rates are determined by your age, gender, health, and coverage amount.
Each insurance company has its own guidelines to assess risk and assign your rates.
Generally speaking, the younger you are and fewer health conditions you have, the cheaper your rates will be.
The higher your coverage amount, the more expensive your rates will be.
Best whole life insurance companies
The best life insurance company for you depends on a number of factors, including your age, overall health profile, financial needs, and the type of coverage you’re looking for.
Using industry pricing data from Policygenius carrier partners, and ratings from third parties like AM Best and J.D. Power, we selected the best whole life insurance companies on the market. Our independent recommendations will help you get life insurance coverage with confidence.
The 4 best whole life insurance companies of 2024
Company | Policygenius rating | AM Best rating | Best for | |
4.9/5 ★ | A++ | Overall, customer satisfaction | ||
4.6/5 ★ | A | Living benefits | ||
4.6/5 ★ | A | Final expenses | ||
4.5/5 ★ | A+ | Seniors, accelerated death benefits |
Whole life insurance vs. term life insurance
If you’re shopping for life insurance, you may be wondering whether whole life insurance is better than term life insurance. The answer will depend on your coverage needs — and your budget.
If you’re looking for an affordable, temporary way to provide your family with a financial safety net in your absence, term life insurance can be a good fit.
If you have dependents that require lifelong coverage or long-term financial obligations, or you have a high net worth and are looking for life insurance options to diversify your investment strategy or complement your estate planning strategy, then whole life insurance can be a better option for you.
The main differences between whole life and term life are:
The length of your coverage: Whole life coverage is permanent, while term life lasts for a set number of years and then expires.
The cash value: Whole life has a separate cash value account you can borrow against while you’re alive, while term life doesn’t — term life only pays out the death benefit to your beneficiaries upon your death.
The cost: Whole life is significantly more expensive than term life.
Comparing whole life vs. term life
Features | Term life insurance | Whole life insurance |
Permanent coverage | No — maximum of 40 years | Yes |
Cost* ($500,000 coverage amount) | $26/month for a 20-year term | $451/month |
Guaranteed death benefit payout | Yes | Yes |
Guaranteed cash value | No | Yes |
Premium cost stays fixed | Yes, in most cases | Yes, in most cases |
Pays annual dividends | No | Yes, in some cases |
Whole life vs. universal life insurance
Universal life insurance (UL) is another type of permanent life insurance. In many ways, it resembles whole life insurance, but it offers some flexibility features that make it unique.
Similar to whole life insurance, universal life policies don’t expire and come with a cash value component.
But unlike whole life, where both the death benefit and premiums are set, UL allows you to increase or decrease how much you pay toward premiums.
Universal life policies also allow you to adjust the death benefit on your policy.
If you’re looking for permanent coverage with a guaranteed death benefit and cash value, whole life insurance can work for you. If you desire flexibility and are able to be involved in monitoring your policy’s cash value, UL can be a good fit for you.
Comparing whole life vs. term life vs. universal life insurance
Universal life insurance | Term life insurance | Whole life insurance | |
---|---|---|---|
Coverage length | Permanent | Lasts for a set time or term | Permanent |
Cash value | Flexible, not guaranteed growth | No cash value | Fixed, guaranteed growth |
Premiums | Flexible, more expensive than term | Fixed, much more affordable than UL & whole life | Fixed, much more expensive than term, higher than UL |
How & where can you buy whole life insurance?
You can buy life insurance from an independent broker that works with multiple companies, or directly from an individual insurance company. At Policygenius, our agents can help you compare quotes from different insurance companies to find the right coverage at a price that works for you.
Fill out an application, have a phone call with an agent, and then, in most cases, take a medical exam.
Wait for the insurance company to review your application and give you your final rate.
Once you sign the policy paperwork and pay your first premium, you’re covered.