More on Life Insurance
Whole life insurance
A life insurance policy that lasts your whole life and includes a cash value savings component, but may be too costly for most people.
KEY TAKEAWAYS
Premiums for whole life insurance fund your death benefit and an additional cash value feature
The cash value of a whole life insurance policy is guaranteed, and grows at a generally 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
You probably already know you need some form of life insurance to protect your loved ones financially. But you may still be deciding what type of life insurance is best for you.
Like all life insurance products, whole life is designed to provide financial protection for people or organizations you care about in the event of 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 the right choice for some.
TABLE OF CONTENTS
What is whole life insurance?
Whole life insurance is a type of permanent life insurance (also called cash value life insurance), which is one of the two major categories of life insurance. The second major category is term life insurance. Whole life insurance lasts for your entire life, and the cash value grows at a 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 investing in part because your provider will subtract administrative fees related to managing your policy that a typical investment company doesn't pay.
Whole life insurance quick facts
| FEATURES | WHOLE LIFE INSURANCE OVERVIEW |
|---|---|
| Average Duration | Life |
| Average Cost | 5-15x more than term |
| Guaranteed Death Benefit? | Yes |
| Guaranteed Cash Value? | Yes |
| How Cash Value Grows | Earns interest at a rate determined by your insurer |
| Premiums | Level |
| Notes | No risk compared to other permanent types, but you may find better investment options elsewhere |
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 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 |
Methodology: Sample based on lowest cost average from top carriers for a 30-year-old male in a Preferred health classification in the New Jersey area. Life insurance quotes based on policies offered by Policygenius in November 2020 from our partner whole life insurance companies: AIG, Guardian Insurance, MassMutual, and Mutual of Omaha.
No matter the type of life insurance you buy, costs are determined based on your:
- Health: An adverse medical history makes you a risk to insurers and 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 that you don’t buy.
- 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 to your life insurance policy 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.
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
Types of whole life insurance
Whole life insurance is a traditional type of permanent life insurance that pays out guaranteed dividends. It has multiple iterations that allow for the policy to cater to your specific insurance and investment needs.
- Universal life insurance has a cash value with a variable interest rate. After your cash value builds up, you can use it to pay for your policy’s premiums.
- Variable life insurance has a cash value with an interest rate that grows or shrinks depending on market trends.
- Variable universal life insurance allows you to determine what assets your premiums invest in. The cash value and cost of your premiums fluctuate depending on market rates.
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.
Those looking for traditional whole life insurance policies will likely be able to find one through MassMutual and Guardian Insurance. But if you're just looking to cover end of life expenses, such as funeral costs, then explore your options with AIG or Mutual of Omaha. And if you're looking for universal life insurance, look to any insurer that partners with Policygenius.
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 how the best life insurance companies rank
How to buy a whole life insurance policy
Before you get a whole life insurance policy, make sure permanent coverage is in line with your needs. Most people are better off with term life insurance, which is exponentially cheaper for the same amount of coverage. But if your circumstances warrant a whole life insurance policy (perhaps because you have a high net worth or a lifelong dependent), then you'll undergo a standard underwriting process. This includes an initial phone interview with an insurance agent and a medical exam conducted by the insurer.
If you're opting for final expense insurance, which offers much less coverage, then the application process is more cut and dry: You'll talk through your needs with the life insurance agent and pay your first premium, putting your coverage in force.
→ Find out 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 and nothing more. Permanent policies like whole life insurance, on the other hand, cost more because they last longer and build cash value. Because of these additional features, whole life is at least five to 15 times more expensive than term life.
→ 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 INSURANCE | CONS OF WHOLE LIFE INSURANCE |
|---|---|
| Life insurance coverage lasts your entire life | Coverage is expensive — five to 15 times more than term life insurance |
| Your policy can accrue interest through the cash value | Withdrawing from the cash value incurs high administrative fees |
| The cash value has a guaranteed rate of return | Dedicated investment options provide a higher rate of return |
For the vast majority of people — and especially the 45% who surrender whole life insurance policies within the first 10 years — a term life insurance policy is the better option. You’ll get more coverage at a lower price, making it more affordable than whole life.
Life insurance also isn’t a great investment 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.
Compare the market, right here.
Policygenius saves you up to 40% by comparing the top-rated insurers in one place.
Alternatives to regular whole life insurance
- Term life insurance: Because term is so much cheaper than whole life insurance, you can buy a lot more coverage (meaning a larger death benefit) for the same amount of money.
- Other permanent (cash value) life insurance: Other types of permanent life insurance policies grow the cash value portion of the policy differently, which may better suit your circumstances.
- Single premium life insurance: Single premium life insurance is a type of whole life insurance that only requires one premium payment. It has a cash value that you can access while you’re still alive, but instead of paying your 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
Is whole life insurance worth it?
Whole life insurance is best for people in special circumstances that require it. 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 without the need to track term lengths or expiration dates. For everyone else, it’s better to pursue a term life policy.
Consult with an independent insurance agent or broker to find out whether whole life insurance is right for you and how to find the best policy at the best price.
Whole life insurance FAQ
How does whole life insurance work?
Whole life insurance policies offer permanent life insurance coverage 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.
What is the difference between term and whole life insurance?
Term life insurance coverage lasts for a set period of time, between 10 and 30 years, while whole life insurance coverage lasts your entire life. Because whole life insurance lasts longer, it’s also five to 15 times more expensive than term life insurance.
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 untaxed 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 each individual’s life insurance needs, but they tend to be costly.
Nupur Gambhir
Insurance Expert
Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.
Amanda Shih
Insurance Expert
Amanda Shih is an insurance editor at Policygenius in New York City. Previously, she worked in nonfiction book publishing and freelance content marketing. Amanda has a B.A. in literature and communication from New York University.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.