Whole life insurance: What is it & how does it work?

Whole life insurance: What is it & how does it work?

Rebecca Shoenthal author photoAmanda Shih author photo

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Rebecca Shoenthal

Rebecca Shoenthal

Licensed Insurance Expert

Rebecca Shoenthal is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.

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Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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Expert reviewed

This article has been reviewed by a licensed Policygenius expert to ensure that sources, statistics, and claims meet our standard for accurate and unbiased advice.

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Patrick Hanzel, CFP®

Patrick Hanzel, CFP®

CERTIFIED FINANCIAL PLANNER™ & Advanced Planning Team Lead

Patrick Hanzel is a CERTIFIED FINANCIAL PLANNER™ and Advanced Planning Team Lead at Policygenius.

Updated January 6, 2022 | 4 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

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Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Rebecca Shoenthal author photoAmanda Shih author photo

By

Rebecca Shoenthal

Rebecca Shoenthal

Licensed Insurance Expert

Rebecca Shoenthal is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.

&

Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Expert reviewed

Expert reviewed

This article has been reviewed by a licensed Policygenius expert to ensure that sources, statistics, and claims meet our standard for accurate and unbiased advice.

Learn more about our editorial review process.

by

Patrick Hanzel, CFP®

Patrick Hanzel, CFP®

CERTIFIED FINANCIAL PLANNER™ & Advanced Planning Team Lead

Patrick Hanzel is a CERTIFIED FINANCIAL PLANNER™ and Advanced Planning Team Lead at Policygenius.

Updated January 6, 2022 | 4 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Whole life insurance lasts, as the name suggests, for your entire life. As long as you pay the premiums, your beneficiaries will be taken care of when you die. Plus, your policy will grow tax-free over time. This type of permanent life insurance is generally best for high earners and people with long-term financial obligations.

Why shop with us for whole life insurance

We do more than just sell insurance. Whether you're just getting started shopping or are ready to buy, our licensed experts are here at every step to answer your questions, handle paperwork, and help you secure the whole life policy that's right for your family.

Purchasing whole life insurance is an easy way to financially protect your loved ones without worrying about policy expiration dates. 

Like all life insurance products, whole life pays a tax-free death benefit to your beneficiaries upon your death. The biggest difference from other types of life insurance: Whole life insurance is permanent and lasts your entire life. 

While most people will find term life insurance more affordable, the permanence of whole life coverage and special features – including a tax-deferred cash value component – make it a good choice for people with higher incomes or lifelong financial obligations.

Whether you’re ready to buy whole life insurance or just want to learn more, we’re here for you every step of the way. Our agents can walk you through the process, answer questions, and help you compare quotes so you can find the most affordable option for your needs.

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What is whole life insurance?

Whole life is a type of permanent life insurance (also called cash value life insurance). The policy lasts as long as the premiums are paid and has a savings feature called the cash value that works like a guaranteed investment and grows at a low interest rate set by your insurer. 

Whole life policies are 5 to 15 times more expensive than term life insurance. However, whole life insurance is the right choice if you need long-lasting coverage and can afford the premiums.

Top benefits of whole life insurance

Most people find that the high cost of coverage and low returns that whole life insurance provides are not worthwhile. For some, however, it makes sense to choose a whole policy over a term one:

  • Coverage lasts your entire life

  • Policy earns interest through the cash value

  • Guaranteed rate of return on cash value

  • Tax-deferred investment option, ideal if you maxed out your other retirement accounts

Whole life insurance quick facts

FeaturesPolicy overview
Average durationLife
Average cost$55-136/month
Guaranteed death benefitYes
Guaranteed cash valueYes
How cash value growsEarns interest at a rate set by your insurer
PremiumsLevel

Methodology: Rates are calculated for a male non-smoker in a Preferred Plus rate class, obtaining a $100,000 whole life insurance policy payable until age 99. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 10/08/2021.

How much does whole life insurance cost?

Whole life policies are pricey compared to term life insurance. “The range varies based on the length of the term you are comparing and the type of permanent product and features within that product,” says Patrick Hanzel, a certified financial planner and Advanced Planning Team Lead at Policygenius. “For example, some permanent products can have additional benefits like cash value accumulation and a growing death benefit. Others can be lower in cost but not include similar benefits.”

Sample whole life insurance premiums

Coverage amountMonthly paymentAnnual payment
$100,000$89/ mo$1,023/ year
$250,000$213/ mo$2,448/ year
$500,000$421/ mo$4,839/ year
$1,000,000$827/ mo$9,506/ year

Methodology: Rates are calculated for a male non-smoker in a Preferred Plus rate class, buying a whole life insurance policy payable until age 99. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 10/08/2021.

Whole life insurance premiums are calculated based on:

  • Age: The older you are, the riskier you are to insure. Life insurance rates increase by 4.5 to 9% every year, which is why it's a good idea to buy coverage when you're younger.

  • Coverage amount: The more life insurance coverage you get, the higher your premiums will be.

  • Health: Medical concerns, including family medical history, can increase the cost of your premiums. 

  • Term length: Life insurance policies that last longer cost more, which is one reason why whole life costs more than term life insurance.

  • Riders: Adding coverage can increase the cost of your policy, though some riders are free.

Many people overestimate their ability to pay whole life premiums year after year. Approximately 30% of whole policies are surrendered within the first three years and 45% are surrendered within the first 10 years, according to a study by LIMRA and the Society of Actuaries.

→ Learn more about whole life insurance rates

Types of whole life insurance

There are some variations on standard whole life insurance that differ in the policy terms, how your cash value is invested, or how long you pay premiums. Common types of whole life include:

→ Read more about the types of whole life insurance

How does whole life insurance work?

A whole life policy can accrue interest over time within its cash value component. The cash value is a separate vehicle than the death benefit and can be accessed while you’re living in the form of a withdrawal or policy loan, though sometimes with a penalty. While it likely won't grow as quickly as dollars in the market could, it can be a more steady, tax-deferred growth account that you can withdraw from.

The usual breakeven point (when cash value starts to exceed cumulative premiums paid) might take somewhere between 10 and 20 years, so the older you are the less sense it makes to buy a new cash value policy. 

How to find the best whole life insurance policy

Once you’ve chosen an insurance company and policy, the steps for buying coverage are straightforward: you’ll fill out your application, then have a phone interview and a medical exam (you can’t skip the exam for most traditional whole life policies). 

The insurer will review your application materials and medical records and issue you an offer of coverage. Once you sign the policy paperwork and pay your first premium, you’re covered for life.

→ Learn more about the best whole life insurance companies

Ready to shop for life insurance?

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Is whole life insurance worth it?

Most people are better off with term life insurance, which is much cheaper for the same amount of coverage and still provides plenty of protection to your loved ones. Using life insurance to invest isn’t a great idea if you have other options, like a 401(k) or IRA. Traditional investment accounts usually grow at a faster rate than cash value accounts.

Whole life coverage is best for people in specific circumstances, like high earners who need an additional investment vehicle, or people with lifelong dependents. For everyone else, it’s better to pursue a term life policy.

Whole life insurance FAQ

Is whole life insurance a good investment?

A whole life policy has high premiums and low interest on the cash value. For a standalone investment account, there are better options available with higher interest.

How much is whole life insurance?

There is no one price point for coverage. The premiums for a whole life policy are based on your life insurance needs, but they are costly.

What are the benefits of whole life insurance?

Whole life insurance offers lifetime coverage and the cash value feature allows you to grow tax-deferred savings while taking on relatively low investment risk.