Whole life insurance

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.

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 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.

Whole life insurance quick facts

Benefits of whole life insurance

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

How much does whole life insurance cost?

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.”

Sample whole life insurance premiums

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.

→ Learn more about whole life insurance rates

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.

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.

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:

• 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

→ Read more about the types of whole life insurance

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.

→ Learn more about the best whole life insurance companies

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 who care for someone who needs lifelong financial support. For everyone else, it’s better to pursue a term life policy.