Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about oureditorial standards
and how we make money.
Whole life insurance is a type of permanent life insurance, which is designed to provide coverage for your entire life. The type of whole life insurance policy you choose determines how the cash value component grows or shrinks overtime. Unlike term insurance, a whole life policy cannot be convertible or renewable.
Not all cash value accounts are the same, so it’s important to know the difference when shopping for whole life insurance. Below we’ll compare the different types of whole life insurance so you can decide what type of policy is right for you.
Ready to shop for life insurance?
A whole life policy is permanent protection that lasts your entire life or until age 100, depending on the policy selected. If you die while the policy is active, your beneficiaries receive a death benefit, and if you are still living at age 100, the insurer will pay out the face value to you.
A cash value account is a benefit of whole life insurance you can access while you’re alive. It’s separate from the death benefit and can grow overtime, similar to other savings accounts. The cash value can be accessed in the form of policy loans (borrowing money from the policy) or by surrendering the policy to receive the existing cash value.
Cash value grows at a fixed rate for traditional whole life insurance. Traditional whole life insurance policies offer coverage with level premiums paid up to a certain age (either age 65, 99, or 121) or for a specific period of time (usually 10 or 20 years). Cash value for these types of policies accumulates until age 100 and the face value (death benefit) remains level.
Traditional whole life policies earn a specified guaranteed rate of return. Once the cash value has accumulated for a certain number of years, typically three years, the owner can borrow against the policy.
Cash value works differently depending on the type of whole life insurance policy you have. The different types of whole life insurance policies that have cash value include:
Indexed whole life insurance: Earns interest based on an investment index chosen by your provider.
Single-premium whole life insurance: Cash value grows at a fixed rate set by your insurer with a minimum guaranteed rate of return.
Variable whole life insurance: The cash value is invested in various funds offered by the insurance company, including mutual funds and annuities. Investment performance depends on market trends, so the policyholder bears all investment risk.
Whole life insurance for children: The cash value will grow or shrink according to which type of policy you select. Typically, whole life policies for kids are traditional whole life so the cash value will grow at a fixed rate.
Final expense whole policies including guaranteed issue whole life insurance and simplified issue whole life insurance do not have cash value accounts and do not accumulate funds over time. Your premium payments go solely toward the death benefit. To learn more about the investment options, payment schedules, and growth, we recommend talking to a licensed independent broker or agent.
Other types of permanent life insurance – including Universal Life, Indexed Universal Life, Variable Life, and Variable Universal Life – also build cash value. The cash value works differently for these policies than it does for whole life insurance:
|Death Benefit||Cash value||Premiums||Loans/Partial Surrenders||Who bears investment risk?|
|Whole Life||Fixed, guaranteed minimum||Guaranteed||Fixed||Loans available||Insurer|
|Universal Life||Adjustable, guaranteed minimum||Guaranteed minimum||Flexible||Loans and Partial surrenders||Insurer|
|Variable Life||Variable, guaranteed minimum||Not guaranteed||Fixed||Loans available||Policyowner|
|Variable Universal Life||Variable & adjustable, no guaranteed minimum||Not guaranteed||Flexible||Loans and Partial surrenders||Policyowner|
If you’re wondering what type of cash value growth is best for your investment needs, reach out to a Policygenius agent for free to learn more.
No. Term life insurance only provides a death benefit. Only permanent life insurance policies can build cash value.
The cash value acts as an alternate savings vehicle. It is separate from the death benefit and builds value differently depending on the type of policy you choose.
It depends on which type of whole life insurance you have. For a traditional whole life insurance policy, the cash value grows based on a guaranteed minimum interest rate set by the insurer.
Life insurance terminology doesn't have to be confusing. Here are definitions of the most common terms and phrases you'll find in a policy.
More related articles