What is whole life insurance?
Whole life insurance is a type of permanent life insurance that doesn’t expire — meaning that no matter when you die, your loved ones will receive a guaranteed lump sum of money called a death benefit. Unlike term life policies, whole life includes a cash value savings component you can access while you’re still alive. The cash value earns interest at a fixed rate set by the insurer.
How does whole life insurance work?
Whole life insurance pays a death benefit to your beneficiaries when you die in exchange for the premiums you pay to keep your policy active.
The cost of your premiums remains the same throughout the duration of your policy.
Your policy never expires, which means your death benefit is guaranteed for life.
In addition, whole life has a cash value component that earns interest over time. The interest rate is set by the insurer. Part of your premiums are used to pay for your policy, and the rest goes toward your cash value.
Once you’ve accumulated enough cash value, you can withdraw or borrow from it (though you’ll eventually have to pay taxes on any amount you withdraw). Any cash value you’ve used and haven’t paid back by the time of your death is deducted from the death benefit your beneficiaries will receive.
It can take five to 10 years for a whole life policy to build significant cash value, depending on the type of whole life insurance you buy.
When you die, your beneficiaries only receive the death benefit. The cash value is reverted back to the insurance company.
Some whole life policies pay dividends. Called participating whole life insurance, these policies pay an annual bonus to policyholders if the insurance company generates profits.
Who is whole life insurance good for?
A traditional whole life policy can be a good fit for high-net-worth individuals and people who have long-term financial obligations.
High-net-worth individuals: High earners can use whole life insurance as an additional investment vehicle, especially if you’re already maximizing contributions to traditional investment accounts like a 401(k) or IRA. Whole life can also be used as a buffer against estate tax, as long as your estate is valued at less than $12.92 million. [1]
People with long-term financial obligations: If you have financial obligations that will last longer than 20 to 30 years — for example, lifelong dependent children, or if you expect to care for aging parents — whole life can ensure they’ll be cared for in the event of your death, no matter when it occurs.
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Is whole life better than term life?
The answer depends on your coverage needs. If you’re looking for an affordable, temporary way to provide your family with a financial safety net in your absence, term life insurance can be a good fit. If you have dependents that require lifelong coverage or long-term financial obligations, then a policy that offers permanent protection, like whole life, can be a better option.
The main differences between whole life and term life are:
The length of your coverage: Whole life coverage is permanent, which means it never expires, while term life lasts for a set number of years and then expires.
The cost: Whole life is significantly more expensive than term life.
The cash value: Whole life has a separate cash value account, while term life doesn’t — term only offers a lump-sum payout called the death benefit.
Comparing whole life vs. term life
Features | Term life insurance | Whole life insurance |
Permanent coverage | No — maximum of 30 to 40 years | Yes |
Cost* ($500,000 coverage amount) | $26/month for a 20-year term | $440/month |
Guaranteed death benefit payout | Yes | Yes |
Guaranteed cash value | No | Yes |
Premium cost stays fixed | Yes, in most cases | Yes, in most cases |
Pays annual dividends | No | Yes, in some cases |
*Methodology: Average monthly term life insurance rate is for male and female non-smokers with a Preferred health rating obtaining a 20-year, $500,000 policy. Term life insurance averages are based on a composite of policies offered by Policygenius from Banner Life, Brighthouse Financial, Corebridge Financial, Foresters Financial, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. Average monthly whole life insurance rate is calculated for non-smokers in a Preferred health classification, obtaining a whole life insurance policy paid up at age 100 from MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 09/01/2023.
→ Learn more about the differences between term and whole life insurance
How much does whole life insurance cost?
A 30-year-old non-smoking female in good health can expect to pay $414.50 for a whole life insurance policy with a $500,000 death benefit payout. A 30-year-old non-smoking male with a similar health profile can expect to pay $487 for a policy with the same coverage.
Average monthly whole life insurance rates
Age | Gender | $250,000 coverage amount | $500,000 coverage amount | $1,000,000 coverage amount |
|---|---|---|---|---|
20 | Female | $147.50 | $290.00 | $558.50 |
Male | $175.50 | $347.00 | $670.50 | |
30 | Female | $209.50 | $414.50 | $814.00 |
Male | $245.50 | $487.00 | $954.50 | |
40 | Female | $305.00 | $605.50 | $1,195.00 |
Male | $371.00 | $737.00 | $1,433.50 | |
50 | Female | $480.50 | $957.00 | $1,899.00 |
Male | $569.50 | $1,134.50 | $2,222.00 | |
60 | Female | $800.50 | $1,597.00 | $3,179.50 |
Male | $957.00 | $1,909.50 | $3,769.00 |
Methodology: Whole life insurance rates are calculated for male and female non-smokers in a Preferred health classification obtaining a $250,000, $500,000, or $1,000,000 whole life insurance policy fully paid up at age 100 offered through MassMutual. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 9/1/2023.
What factors affect your whole life insurance rates?
Whole life insurance rates are determined by your age, gender, health, and coverage amount.
Each insurance company has their own guidelines to assess risk and assign your rates.
Generally speaking, the younger you are and fewer health conditions you have, the cheaper your rates will be.
The higher your coverage amount, the more expensive your rates will be.
How do you pay for a whole life insurance policy?
There are several options to pay for whole life insurance. These include:
Regular payments (premiums) up to age 99. You pay premiums on a monthly, quarterly, semi-annually or annually basis until you reach age 99 — essentially, for the rest of your life. This is the most common type of whole life insurance payment. .
Single premium. You pay the full cost of the policy in one lump-sum payment up front.
Limited pay. Instead of paying premiums for the rest of your life, you cover the full price of your policy on a limited payment schedule. Single pay, 10 pay, and 20 pay are all examples of limited pay whole life policies.
10 Pay. You cover the entire cost of the policy over 10 years.
20 Pay. You cover the full price of your policy over 20 years.
Paid up at age 65. You pay premiums on your policy until you reach age 65.
How and where to buy whole life insurance
You can buy life insurance from an independent broker that works with multiple companies, or directly from an individual insurance company. At Policygenius, our agents can help you compare quotes from different insurance companies to find the right coverage at a price that works for you.
Fill out an application, have a phone call with an agent, and then, in most cases, take a medical exam.
Wait for the insurance company to review your application and give you your final rate.
Once you sign the policy paperwork and pay your first premium, you’re covered.
What are the best whole life insurance companies?
The best life insurance company for you depends on a number of factors, including your age, overall health profile, financial needs, and the type of coverage you’re looking for.
Using industry pricing data from Policygenius carrier partners, and ratings from third parties like AM Best and J.D. Power, we selected the best whole life insurance companies on the market. Our independent recommendations will help you get life insurance coverage with confidence.
The 4 best whole life insurance companies of 2023
Company | Policygenius rating | AM Best rating | Best for | |
4.9/5 | A++ | Overall, customer satisfaction | ||
4.6/5 | A | Living benefits | ||
4.6/5 | A | Final expenses | ||
4.5/5 | A+ | Seniors, accelerated death benefits |
Pros of whole life insurance
Whole life insurance lasts your whole life. You don’t have to worry about your coverage expiring. This can be especially helpful if you have dependents that require lifelong care or if you have long-term financial obligations.
Whole life earns interest through its cash value component. This can be a good option if you’re already maximizing your contributions to tax-advantaged accounts like a Roth IRA or a 401(k) and are seeking another investment option.
You can use your policy’s cash value while you’re alive. Withdrawing money or taking out a loan from your cash value can be easier and less expensive than taking out a personal loan.
Cons of whole life insurance
Whole life is significantly more expensive than term life. If you take out a whole life policy and then find you can’t afford to keep it, you risk leaving your family without financial protection.
With whole life, penalties can apply if you cancel your policy during the surrender period — but there’s no penalty for canceling term life insurance.
Whole life offers lower rates of return as an investment vehicle than other investment options.
Whole life is a riskier investment option. Tax-advantaged accounts like Roth IRAs, for example, don’t require you to fund them every year, so you have more flexibility. Whole life policies require you to continue paying premiums for your policy to remain active and for your cash value to accumulate.
You might reduce the death benefit your beneficiaries will receive upon your death if you don’t pay back any loans you took against your policy’s cash value.
More about whole life insurance
Frequently asked questions
Is whole life insurance a good investment?
Traditional investment accounts typically offer higher returns and more flexibility than whole life insurance policies.
What is the minimum amount of whole life insurance you should buy?
The minimum amount of life insurance coverage you should buy will depend on your financial protection needs. Typically, $50,000 is the minimum available for traditional whole life policies, while other types of policies, like guaranteed issue life insurance, can provide as little as $2,000 in coverage.
Does whole life insurance always pay out?
Whole life insurance policies will pay out a death benefit to your beneficiary if you die while the policy is active. This is true except for a few exclusions, such as instances of insurance fraud or suicide during the first two years a policy is active.
Can you cash out a whole life insurance policy?
You can withdraw from the cash value of your whole life insurance policy. You can also cancel your policy and take the cash surrender value — which is your cash value minus any surrender fees.
How much does a $1 million whole life insurance policy cost?
A $1 million whole life insurance policy can cost between $660 and $3,770 per month, depending on your age, gender, health profile, and lifestyle habits. In general, the younger and healthier you are, the less you’ll pay for life insurance.
How much do you pay a month for whole life insurance?
A 30-year-old non-smoking female in good health can expect to pay $414.50 per month for a whole life insurance policy with a $500,000 payout. A 30-year-old non-smoking male with a similar profile can expect to pay $487 per month for the same coverage. How much you pay for whole life insurance will depend on your age, gender, overall health profile, and lifestyle habits, in addition to the coverage amount on your policy.
