Popular Types of Life Insurance

Types of Life Insurance

Term Life Insurance

Whole Life Insurance

No medical exam life insurance

Whole life insurance

Whole life insurance is a permanent policy that lasts your whole life. It includes a cash value and savings component, which makes it more expensive than other types.

Purchasing whole life insurance is an easy way to protect your loved ones financially without worrying about policy expiration dates. Like all life insurance products, whole life pays a death benefit to your beneficiaries if you die while your policy is active. While most people will find term life insurance more affordable, the permanence of whole life coverage and the tax-deferred cash value make it a good choice for high-earners or people with lifelong financial obligations.

KEY TAKEAWAYS

  • Premiums for whole life insurance fund your policy and an additional cash value feature

  • The cash value works like a guaranteed investment and grows at a low rate

  • Whole life insurance is five to 15 times more expensive than term life insurance; 45% of policyholders abandon their policy within the first 10 years

  • A whole life policy is best if you need coverage for your entire life or need another investment vehicle

What is whole life insurance?

Whole life insurance is a type of permanent life insurance (also called cash value life insurance). The policy lasts for your entire life and has a savings component called the cash value that grows at an interest rate set by your insurer.

Life insurance providers usually offer a guaranteed minimum rate of growth for the cash value of whole life policies. However, returns on your investment may be smaller than in traditional investment options. That’s because insurance companies will take out administrative fees related to managing your policy that a typical investment company doesn't.

Whole life insurance quick facts

FEATURESWHOLE LIFE INSURANCE OVERVIEW
Average DurationLife
Average Cost$55-136/month
Guaranteed Death BenefitYes
Guaranteed Cash ValueYes
How Cash Value GrowsEarns interest at a rate determined by your insurer
PremiumsLevel
NotesLow-risk compared to other permanent insurance, but you may find a better return on investment elsewhere

Methodology: Average cost based on lowest cost average for non-smoking males and females between 20 and 40 years old in New Jersey, who qualify for a Preferred health classification, obtaining a $100,000 whole life insurance policy. Life insurance quotes based on policies offered by Policygenius from our partner whole life insurance companies: AIG, Guardian Insurance, MassMutual, and Mutual of Omaha. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 2/01/2021.

Do you need whole life insurance?

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 as an investment vehicle isn’t a great idea if you have other options available to you, like a 401(k) or IRA. Traditional investment accounts usually grow at a faster rate than the cash value of a life insurance policy.

But if you have a high net worth or a lifelong dependent, then whole life could be a good option for you.

What's the best whole life insurance company?

Most of the top life insurance companies offer some sort of whole life insurance, though the type of whole life insurance policy you can get varies by insurer. The table below reflects what kind of policy four of Policygenius’ partner insurers offer and ratings for each.

LIFE INSURANCE COMPANYTYPE OF POLICYPOLICYGENIUS RATING (OUT OF 10)J.D. POWER RATINGBBB RATINGA.M. BEST RATING
MassMutualTraditional whole life insurance6.7769B-A++
Guardian InsuranceTraditional whole life insurance6743A+A++
AIGFinal expense insurance8742A-A
Mutual of OmahaFinal expense insurance7789A+A+

Since every provider evaluates every application differently, work with an independent broker or agent to determine the right life insurance company for your individual needs.

→ Learn more about the best whole life insurance companies

Compare and buy life insurance

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How much does whole life insurance cost?

"On average, permanent coverage can be five to 15 times more expensive than a term policy with the same benefit amount. This range can vary based on the length of the term you are comparing and the type of permanent product and features within that product,” says Patrick Hanzel, Advanced Planning Specialist and Certified Financial Planner 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

LIFE INSURANCE 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: Sample based on lowest cost average from top carriers for a 30-year-old male in a Preferred health classification in New Jersey. Life insurance quotes based on policies offered by Policygenius from our partner whole life insurance companies: AIG, Guardian Insurance, MassMutual, and Mutual of Omaha. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 2/01/2021.

No matter what type of life insurance you buy, your premiums will vary, as they are determined based on your:

  • Health: An adverse medical history increases the cost of your premiums. Your weight, any diagnoses, and prescription history all have an impact.

  • Age: The older you are, the higher the risk you pose to a life insurance company. Life insurance rates increase by 4.5-9% every year.

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

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

  • Riders: Adding supplemental coverage can increase the cost of your premiums, though some riders are included in policies for free.

Many people overestimate their ability to pay whole life premiums year after year. Approximately 30% of whole life insurance 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

quote

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.

- Patrick Hanzel

How to buy a whole life insurance policy

No single whole life insurance policy is the best for everyone. You should compare quotes to find the most affordable rates and the best policy for your family’s needs, but also consider a provider that:

  • Is favorable toward applicants with any health conditions you may have

  • Guarantees a good rate of return on the cash value

  • Offers the policy options and riders that you want

  • Has good customer service and online policy management options

  • Is well-rated by trusted third-party agencies

→ Learn more about buying life insurance

Whole life vs. term life insurance

The biggest difference between term life insurance and whole life insurance is that term life insurance ends after a set number of years; it offers a death benefit should something happen to you within that time and nothing more. Whole life insurance, on the other hand, costs more than you would pay for an equal coverage amount of term life because it lasts longer and builds cash value.

→ Check out our full guide on term vs. whole life insurance

Pros and cons of whole life insurance

Like all life insurance policies, whole life insurance comes with its own set of benefits and drawbacks that are worth considering.

PROS OF WHOLE LIFE INSURANCECONS OF WHOLE LIFE INSURANCE
Life insurance coverage lasts your entire lifeCoverage is expensive compared to term life
Your policy can accrue interest through the cash valueWithdrawing from the cash value incurs high administrative fees
The cash value has a guaranteed rate of returnDedicated investment options provide a higher rate of return

Alternatives to whole life insurance

  • Term life insurance : Because term is so much cheaper than whole life insurance, you can buy a lot more coverage for the same amount of money.

  • Other types of permanent life insurance : Other types of permanent life insurance grow the cash value differently, which may better suit your needs.

  • Single premium life insurance : Single premium is a type of whole life insurance that only requires one premium payment. Instead of paying premiums monthly or annually, you make one upfront payment for a lifetime of coverage.

→ Learn more about the other types of life insurance and how they work

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Is whole life insurance worth it?

Whole life insurance is best for people in special circumstances that require it. For example, if you have a high income and regularly max out your other tax-deferred savings accounts, whole life insurance can be useful in managing your estate. And, if you have a lifelong dependent who will need care after you are gone, a whole life policy guarantees financial support for them should you no longer be able to provide it. For everyone else, it’s better to pursue a term life policy.

Whole life insurance FAQ

How does whole life insurance work?

Whole life insurance policies last for your entire life and can accrue interest over time with a cash value component. The cash value can be used as an additional investment vehicle and can be accessed while you’re alive, though sometimes with a penalty.

Is whole life insurance a good investment?

If you’re in a high tax bracket and have maxed out other investment options, whole life insurance policies can build additional tax-deferred wealth. But most of the time, whole life insurance shouldn’t be a part of your savings strategy because of the high premiums.

How much is whole life insurance?

Whole life insurance policies are highly customized to the policyholder and there is no one price point for coverage. The premiums for a whole life insurance policy are based on your life insurance needs, but they tend to be costly.