Types of whole life insurance

A whole life policy offers lifelong financial coverage and cash value, but some types of whole life insurance may be more beneficial than others.

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Tory CrowleyAssociate Editor & Licensed Life Insurance AgentTory Crowley is an associate editor and a former licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.&Rebecca ShoenthalEditor & Licensed Life Insurance ExpertRebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

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Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Updated|7 min read

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Whole life is a type of permanent life insurance that lasts your entire life and usually comes with an investment-like feature you can use while you’re still living called the cash value. The cash value account provides advantages like allowing you to borrow against it or using the growth to pay your policy's premiums

Although whole life insurance policies cost significantly more than term life insurance, they're worth considering if you have complex financial needs. Additionally, whole life insurance is designed to last for the rest of your life, where 99% of term life insurance policies expire before they can be claimed . [1] If you decide whole life insurance is a good fit, here’s how to decide which type of whole life insurance is best for you based on your family and financial needs.

Key takeaways

  • Traditional whole life insurance has a cash value amount that grows at a fixed rate.

  • Other types of whole life grow the cash value differently or have flexibility in payment schedules.

  • Knowing what your financial needs are and how you could benefit from your policy’s cash value can help you determine which type of whole life insurance you need.

What are the different types of whole life insurance?

A traditional whole life insurance policy is relatively straightforward: You get lifetime coverage that pays a benefit to your loved ones when you die and a cash value that grows at a fixed rate set by your insurer.

Variations on the standard whole life policy might offer different investment options, payment schedules, or be designed for specific circumstances. The different types of whole life insurance include:

  • Indexed whole life insurance

  • Variable whole life insurance

  • Limited payment whole life insurance

  • Modified whole life insurance

  • Reduced paid-up whole life insurance

  • Single-premium whole life insurance

  • Joint life insurance

  • Whole life insurance for children

  • Guaranteed issue whole life insurance

  • Simplified issue whole life insurance

Whole life insurance basics: Non-participating vs. participating

By having a cash value account with your insurance company you could have a stake in the financial success of the company, which might be reflected in dividends (company profits paid to shareholders). Whether your policy is non-participating or participating determines whether you receive any dividends.

  • Non-participating whole life insurance Doesn’t pay dividends if your insurer has a profitable year. Non-participating policies often have lower premiums. 

  • Participating whole life insurance Pays dividends based on company performance and are applied to your policy’s premiums or cash value. Dividends are considered a refund on an overpayment, rather than a profit .

Dividends are tax-free, and whether you receive them usually depends on your insurer, not the type of policy you buy. Participating policies may offer additional benefits such as paid-up additions, which is extra whole life coverage that you can purchase with your dividends.

Whole life insurance for investors

Though most people should avoid investing in life insurance, high earners who have maxed out other tax-deferred savings options can use whole life insurance to grow their assets. Different policies offer different investment strategies and levels of flexibility.

Indexed whole life insurance

The cash value of an indexed whole life policy grows at a rate controlled by your insurer. There’s a guaranteed minimum and there may be an upper limit, but other changes are based on the performance of an investment index your insurance company chooses (e.g. the S&P 500). 

While the potential for cash value growth is higher, you may pay high management fees on your gains. Unlike indexed universal life insurance (IUL), not all indexed whole life policies allow you to adjust your death benefit or make premium payments with your cash value.

Learn more about the differences between whole life insurance and IUL

Variable whole life insurance

With variable whole life, also called variable life insurance, you decide how to invest your cash value. You choose your investments from a selection of funds offered by your insurer, and your cash value grows or shrinks based on the performance of those funds. Like indexed whole life, gains may come with high fees.

Whole life insurance with flexible payment features

Some whole life insurance companies offer flexibility for paying your premiums. You might have an option to pay your premiums up front, pay over a shorter period, or reduce your coverage and stop paying premiums entirely.

Limited payment whole life insurance

Limited payment plans allow you to pay off your premiums and fund your cash value over a shorter period instead of paying until age 65, 99, or 100. You’ll pay higher premiums for a set number of years, then your policy will be considered paid up. You’ll no longer need to pay to keep your coverage active.

This is sometimes referred to as 10 pay or 20 pay whole life insurance. The numbers reference the number of years you’d be expected to pay premiums; premiums for a 10 pay policy are higher than those for 20 pay whole life.

Modified whole life insurance

Modified whole life insurance comes with a lower premium for the first two to three years of your policy. After that period ends your premiums increase once, often significantly. That lower initial premium means you might be able to afford a higher death benefit right away, rather than buying a lesser amount and trying to increase your coverage later.

If you need whole life coverage and are sure you can afford the higher premiums within a few years, then modified whole life could work for you. 

Reduced paid-up whole life insurance

“On average, permanent coverage can be five to 15 times more expensive than a term policy with the same benefit amount,” says Patrick Hanzel, advanced planning specialist and certified financial planner at Policygenius. The high premiums can make a policy difficult to maintain. 

If you eventually find your policy unaffordable, you may be able to use your accumulated cash value to purchase a reduced amount of paid-up coverage. You’ll still have some whole life protection, which you can supplement with term life coverage if needed. 

Single-premium whole life insurance

If you never want to think about paying for your life insurance (and if you have the means), some insurers allow you to fund your entire whole life insurance policy when you sign up. Some high earners use single-premium whole life for inheritance planning purposes. However, the upfront cost is too high for most budgets, starting at $5,000-10,000 for less than $100,000 of coverage.

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Whole life insurance for family financial planning

Some life insurance companies sell whole life insurance tailored to specific policyholders or needs. These policies offer lifetime coverage with some modifications or additional features.

Joint life insurance

Largely sold to couples (though it can cover any two people), joint policies provide whole life coverage to two individuals under one policy. Joint life insurance is either first-to-die, which pays out after one policyholder dies, or second-to-die (also known as survivorship), which pays after both pass away.

Couples should buy separate life insurance policies, but joint coverage can be helpful if one partner would struggle to qualify for a policy on their own.

Life insurance for children

Individual life insurance policies for children are almost always whole life insurance. They’re often marketed as a way to lock in a policy for your child early and to invest for their future. 

We don’t typically recommend buying life insurance for children unless your child has a medical condition (or is at risk of developing one) that would make them difficult to insure as an adult. In most cases, your child will find a cheaper policy in adulthood, and you’ll see greater gains if you invest in a 529 plan or similar account.

Guaranteed issue whole life insurance

Guaranteed issue offers coverage for people over age 50 who need a small death benefit to cover their final medical expenses or funeral costs. Unlike traditional whole life insurance, there’s no cash value attached and death benefits max out at around $25,000. 

A guaranteed issue policy allows those with more complex health concerns to buy some coverage, as the application requires just a few medical questions and offers near-guaranteed approval.

Simplified whole life insurance

Simplified whole life is similar to guaranteed issue: it provides death benefits up to $40,000 for people over age 45 and doesn’t include a cash value component.

These policies also allow you to avoid a medical exam but you’ll need to answer a health questionnaire. The questionnaire will include questions about whether you have a terminal illness, are currently bedridden, or whether you’re currently in a long-term-care facility. If you answer yes, you may be denied coverage.

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Pros & cons of different whole life insurance types

If you’re exploring whole life insurance options, consider the advantages and disadvantages of each type before you apply. 

Type

Pros

Cons

Indexed whole life insurance

Relatively low-risk investment 

Guaranteed interest

High premiums 

Potential for gains and flexibility is lower than other cash value policies

Variable whole life insurance

Potential for more cash value growth

You can choose how your cash value is invested

No guaranteed minimum cash value if your investments underperform

You take on all of the investment risk, not the insurance company

Limited payment whole life insurance

Guaranteed level premiums

Guaranteed lifetime coverage

Expensive premiums

Higher chance of lapsing on payments

Limited cash value potential

Modified whole life insurance

Low initial premium

Fixed death benefit

Premiums increase and you’ll pay more over the course of your life

Less cash value potential

Reduced paid-up whole life insurance

Ability to eliminate premium payments

Less likely to need to surrender the policy

You could leave your beneficiaries less than you originally intended

If you convert to a reduced paid-up policy, you’ll forfeit any rider you had

Single-premium whole life insurance

Simple, just one payment and you’re set

Lots of cash value growth

Large amount of money required up front

Greater tax penalty potential

Joint life insurance

Can be useful for estate planning

Ensures business continuity

Can complicate divorce filings

Often more expensive than two separate policies

Whole life insurance for children

Guaranteed insurability

Covers burial costs

Low coverage amounts

Rarely needed

Guaranteed issue whole life insurance

Almost 100% of applicants are approved

No medical exam required

Significantly more expensive than other types of insurance

Lower payouts

Simplified issue whole life insurance

No medical exam 

Cheaper than guaranteed issue whole life insurance

Age restrictions (reserved for applicants age 45 and up)

Limited coverage (maximum of $50,000 for most insurers)

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Learn more about life insurance riders

What type of whole life insurance should you get?

The right whole life policy for you depends on your family’s needs and your financial situation. If you need whole life insurance to provide for a lifelong dependent, a traditional whole life policy will provide permanent protection without high investment risk.

If you want coverage that will maximize your investment gains, some policies have more aggressive cash value options. Note that the potential for higher returns can come with a higher risk of losses or a policy lapse

At Policygenius, we can match you with an independent insurance agent to help you find the right type of life insurance for your financial goals.

Learn more about whole life insurance rates

Frequently asked questions

What types of whole life insurance are there?

Whole life insurance has several variations, including limited payment, modified, single-premium, and variable whole life. Different types offer alternative payment options or investment methods. 

The main differences between different types of whole life insurance are how you can use the cash value and how you pay premiums. 

What type of whole life insurance do you need?

Most people will find standard whole life insurance sufficient (and term life insurance even more affordable). The right type of whole life for you will depend on your individual needs.

What is the difference between participating and non-participating whole life insurance?

Participating whole life insurance pays dividends to you when your insurer has a strong financial year, whereas non-participating policies don’t.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of oureditorial standards.

  1. Insurance Information Institute

    . "

    Facts + Statistics: Life insurance

    ." Accessed March 22, 2024.

Authors

Tory Crowley is an associate editor and a former licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Expert reviewer

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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