Whole life insurance: What is it & how does it work?

Whole life insurance: What is it & how does it work?

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Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

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Amanda Shih

Amanda Shih

Editor & Licensed Life Insurance Expert

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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Patrick Hanzel, CFP®

Patrick Hanzel, CFP®

Certified Financial Planner™ & Advanced Planning Team Lead

Patrick Hanzel, CFP®, is a Certified Financial Planner™ and Advanced Planning Team Lead at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.

Updated June 20, 2022 | 4 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Rebecca Shoenthal author photoAmanda Shih author photo

By

Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

&

Amanda Shih

Amanda Shih

Editor & Licensed Life Insurance Expert

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Expert reviewed

Expert reviewed

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 oureditorial review process.

By

Patrick Hanzel, CFP®

Patrick Hanzel, CFP®

Certified Financial Planner™ & Advanced Planning Team Lead

Patrick Hanzel, CFP®, is a Certified Financial Planner™ and Advanced Planning Team Lead at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.

Updated June 20, 2022 | 4 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Whole life insurance is a type of permanent life insurance. As the name suggests, it lasts for your entire life. As long as you pay the premiums, your beneficiaries will be taken care of when you die. In addition to the death benefit that traditional life insurance policies offer, whole life insurance also has a cash value component, so your policy will grow tax-free over time. Whole life insurance is generally best for high earners and people with long-term financial obligations.

Why shop with us for whole life insurance

We do more than just sell insurance. Whether you're just getting started shopping or are ready to buy, our licensed experts are here at every step to answer your questions, handle paperwork, and help you secure the whole life policy that's right for your family.

What does whole life insurance offer?

Buying a whole life insurance policy is an easy way to financially protect your family 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. The biggest difference from other types of life insurance is that it lasts your entire life. 

Who can benefit from whole life insurance?

While most people find term life insurance more affordable, the permanence of whole life coverage and its special features — including a tax-deferred cash value — make it a good choice for people with a high net worth or lifelong financial responsibilities.

Whether you’re ready to buy whole life insurance or just want to learn more, 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.

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What is whole life insurance?

Unlike term life insurance, whole life insurance is a form of permanent life insurance. A whole life insurance policy lasts as long as the premiums are paid and has a cash value component that grows at a low interest rate set by your insurer. 

Whole life policies are 5 to 15 times more expensive than term life insurance, but you may find whole life useful if you can afford the premiums.

Top benefits of whole life insurance

Most people find that the high cost of coverage and low returns that whole life insurance provides are not a good fit for their finances. For some, however, it makes sense to choose a whole policy over a term one. This is why:

  • 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 max out your other retirement accounts

Whole life insurance quick facts

Whole life insurance quick facts

FeaturesPolicy overview
Average durationLife
Average cost$481 to $571/month
Guaranteed death benefitYes
Guaranteed cash valueYes
How cash value growsEarns interest at a rate set by your insurer
PremiumsLevel
Methodology: Rates are calculated for male and female non-smokers in a Preferred health classification, obtaining a $500,000 whole life insurance policy payable until age 99. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of April 2022.

How much does whole life insurance cost?

Whole life policies are pricey compared to term life insurance. “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, 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 rates

AgeSex$250,000$500,000$1,000,000
25Female$175.00$346.00$660.00
Male$199.00$393.00$765.00
35Female$243.00$481.00$947.00
Male$288.00$571.00$1,121.00
45Female$360.00$716.00$1,417.00
Male$435.00$866.00$1,690.00
55Female$589.00$1,173.00$2,332.00
Male$692.00$1,380.00$2,173.00

Methodology: Rates are calculated for non-smokers in a Preferred health classification, obtaining a whole life insurance policy payable within 99 years from MassMutual. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 4/01/2022.

Whole life insurance premiums are calculated based on:

  • Age: The older you are, the riskier you are to insure. Life insurance rates increase by 4.5% to 9% every year, which is why it's a good idea to buy coverage when you're younger.

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

  • Health: Medical concerns, including family medical history, can lead to higher rates. 

  • Payment schedule: You can pay your policy premiums over a set period — 99 years is most common — but if you pay faster (e.g., over 65 years) you’ll pay higher rates over less time.

  • Riders: Adding coverage can increase the cost of your policy, though some riders are free, like an accelerated death benefit rider or chronic illness rider, which both allow you to put the death benefit toward qualifying medical expenses.

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. [1]

→ Learn more about whole life insurance rates

Types of whole life insurance

There are some variations on standard whole life coverage that differ in the policy terms, how your cash value is invested, or how long you pay premiums. Some popular types of whole life include:

  • Guaranteed issue: Offers no-medical-exam coverage up to $25,000 for people over age 45 with near-certain approval.

  • Simplified issue: Offers no-medical-exam coverage up to $50,000 for people over age 45, but requires a medical questionnaire.

  • 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 life insurance: You choose cash value investments from options offered by your insurer and your account earns interest based on the funds’ performance.

  • 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).

These are just some of the types of whole life coverage you can get. An insurance agent can work with you to get the best policy for your needs.

→ Read more about the types of whole life insurance

How does whole life insurance work?

A whole life policy has two separate parts: the death benefit and the cash value. 

  • The cash value: This account builds interest over time and you can withdraw from or take a loan against it. While it won't grow as quickly as a standard investment could, it can be a steadier, tax-deferred investment option. The usual breakeven point (when cash value exceeds cumulative premiums paid) might take somewhere between 10 and 20 years, so the older you are, the less sense it makes to buy a new cash value policy. 

  • The death benefit: The policy payout works the same as in a term life insurance policy. The death benefit amount goes to your beneficiaries in a tax-free lump sum when you die as long as you keep up with your policy premiums. Some more expensive whole life policies will also pay out the remaining cash value alongside the death benefit.

Where to buy whole life insurance

Every insurance company has its own rules for whole life policies and how it weighs different health risks, so one company may be a better fit for you than another. An independent broker like Policygenius can compare rates and policy features to help you find the right whole life insurance company for your needs, then guide you through the application process.

Once you’ve chosen an insurance company and policy, the steps for buying coverage are straightforward: you’ll fill out your application, then have a phone interview and a medical exam.

The insurer will review your application materials and medical records and determine how much you pay for 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

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Is whole life insurance worth it?

Whole life coverage is best for people in specific circumstances, like high earners who need an additional investment vehicle, or people with lifelong dependents. 

For everyone else, it’s better to pursue a term life policy, which costs less for the same amount of coverage and provides the same protection to your family. And as an investment vehicle, whole life doesn't yield as high of a return as traditional investment accounts, like a 401(k) or IRA. If you’re still unsure which type of insurance is best for you, an insurance agent can help you weigh the pros and cons. 

Frequently asked questions

Is whole life insurance a good investment?

A whole life policy has high premiums and low interest on the cash value. For a standalone investment account, there are better options available with higher interest.

How much is whole life insurance?

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.

What are the benefits of whole life insurance?

It offers lifetime coverage and the cash value feature allows you to grow tax-deferred savings while taking on relatively low investment risk.

What is the catch with whole life insurance?

The high rates, low return on cash value, and additional features and restrictions of whole life can make it harder to understand and maintain.