Types of whole life insurance

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

When buying a life insurance policy, most people choose to get either term life insurance or whole life insurance. Whole life is a type of permanent life insurance that offers coverage for your entire life and usually comes with an investment-like feature called the cash value.  

Although policies cost significantly more than term insurance coverage, whole life insurance is worth considering if you have complex financial needs. Here’s how to decide which type of whole life insurance is best for your family. 

Key takeaways

  • Traditional whole life insurance provides permanent coverage and 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

  • Some whole life insurance is intended for a specific use, like joint life insurance, which covers two people

  • A licensed professional can help you choose the best policy for your financial needs

What are the different types of whole life insurance?

A traditional whole life insurance policy (also called ordinary life insurance ) 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 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

  • Guaranteed issue whole life insurance

  • Limited payment whole life insurance

  • Joint life insurance

  • Modified whole life insurance

  • Reduced paid-up whole life insurance

  • Simplified issue whole life insurance

  • Single-premium whole life insurance

  • Variable whole life insurance

  • Whole life insurance for children

Non-participating vs. participating whole life insurance

By having a cash value account with your insurance provider you 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 does not pay dividends if your provider has a profitable year. Non-participating policies often have lower premiums

  • Participating whole life insurance does pay dividends. Payment depends on company performance and dividends are often applied to your policy’s premiums or cash value. 

Dividends are tax-free, and whether you receive them usually depends on your provider, 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 their other tax-deferred savings options may consider using 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 provider. 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 provider 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, not all indexed whole life policies allow you to adjust your death benefit or make premium payments with your cash value.

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 provider, 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 providers 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

This type of whole life insurance charges 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 anticipate being able to 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 want your life insurance payments to be one-and-done and you have the means, some providers allow you to fund your entire whole life insurance policy up front. Some high earners use single-premium 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 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 recommend buying life insurance for kids 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 will need to answer a health questionnaire. The questionnaire will include questions about whether you have a terminal illness, if you’re 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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What type of whole life insurance should you buy?

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

Whole life insurance is also much more expensive than term life insurance, so it isn’t the most cost-effective option for most people. Work with an independent insurance agent and a Certified Financial Planner to find the right type of life insurance and weigh the best investment options for your goals.

Types of whole life insurance FAQ:

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.

What type of whole life insurance do I 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 policyholders when your provider has a strong financial year, whereas non-participating policies do not.