Whole life insurance is a permanent policy that lasts your whole life. It includes a cash value savings component, which makes it more expensive than other types of insurance.
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.
byPatrick Hanzel, CFP®
Patrick Hanzel, CFP®
CERTIFIED FINANCIAL PLANNER™ & Advanced Planning Team Lead
Published October 20, 2021|4 min read
Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about oureditorial standards
and how we make money.
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. Unlike a term life insurance policy, though, which you may very well outlive, whole life insurance lasts for the rest of your life. So as long as you maintain the policy, it will pay out on your death.
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.
Whether you’re ready to buy whole life insurance or just want to learn, 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.
Ready to shop for 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 also five 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.
|Guaranteed death benefit||Yes|
|Guaranteed cash value||Yes|
|How cash value grows||Earns interest at a rate set by your insurer|
|Notes||Low-risk investment compared to other permanent insurance, but you’ll find a better rate of return elsewhere|
Most people find that the high cost of coverage and low returns that whole life insurance provides are not worth the cost. 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 policies are pricey. On average, permanent coverage can be five to 15 times more expensive than a term policy with the same benefit amount. 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.”
|Coverage amount||Monthly payment||Annual 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|
No matter what type of life insurance you buy, your premiums will vary, as they are based on your:
Age: The older you are, the riskier you are to insure. Life insurance rates increase by 4.5-9% every year, which is why it's a good idea to buy coverage when you're younger, so you can lock in those rates.
Coverage amount: The more life insurance coverage you get, the higher your premiums will be.
Health: Medical concerns 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.
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.
It is worth keeping in mind, however, the returns on cash value in comparison to the premiums you've paid may be small because insurance companies charge administrative fees to manage your policy that a typical investment company doesn't. The usual breakeven point (when cash value starts to exceed cumulative premiums paid) might take somewhere between 10 and 20 years. The death benefit on the policy is also payable upon death just like a term policy, so the insurer is still on the hook for that lump sum amount to your beneficiaries if you were to pass away.
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:
Guaranteed issue whole life insurance: Offers no-medical-exam coverage up to $25,000 for people over age 50 with near-certain approval
Simplified issue whole life insurance: Offers no-medical-exam coverage up to $40,000 for people over age 45, but requires a medical questionnaire
Whole life insurance for children: A personal policy for a child, which is not recommended unless they have a medical condition (or is at risk of developing one) that would make them difficult to insure as an adult
Indexed whole life insurance: Instead of a set rate of return, your cash value’s interest rate depends on how an investment index like the S&P 500 performs
Variable whole life insurance: You choose cash value investments from options offered by your insurer and your account earns interest based on the funds’ performance.
Limited payment whole life insurance: Allows you to pay off your premiums and fund your cash value faster (at a higher cost)
Joint life insurance: Covers two people under one policy and pays out either after one dies (first-to-die) or after both die (second-to-die or survivorship)
Reduced paid-up whole life insurance: If you can’t afford your policy anymore, you can use your cash value to buy a paid-off whole life policy with less coverage
Modified whole life insurance: Charges a lower premium for initial savings, then raises rates significantly after two to three years
Single-premium whole life insurance: A whole life policy funded by one upfront payment
No one type of coverage is best for every person. Here's how to find the best whole life policy for your family’s needs:
Calculate how much coverage you need. The amount depends on your income — Policygenius experts recommend at least 10-15 times your salary — any debts you have, and the financial needs of your family.
Decide what type of whole life insurance to buy. A standard whole life policy is the simplest, but other types of permanent coverage might be a better fit based on your health and financial goals.
Compare companies and quotes. Every company has its own underwriting rules, so one may offer lower premiums than others. Shopping around ensures that you get the best deal.
Compare cash value interest rates. There’s a minimum rate of return on your accumulated cash value, but that rate varies by insurer. Plus, some providers pay dividends — cash bonuses based on company performance — while others don’t, and rules around accessing the cash value can differ too.
Ask about riders and policy options. Not every insurer offers the same riders or nonforfeiture options — features that keep your policy from lapsing if you stop paying premiums — and costs for adding riders can vary too.
Once you’ve chosen an insurance company and policy terms, 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.
Ready to shop for 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 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 who care for someone who needs lifelong financial support. For everyone else, it’s better to pursue a term life policy.
Most of the time, a whole life policy shouldn’t be a part of your savings strategy because of the high premiums and low interest.
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.
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.