What Is Whole Life Insurance?

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Updated: September 11, 2025

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Key Takeaways

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Cash value in a whole life policy grows tax-deferred and can be accessed through loans or withdrawals. However, unpaid loans reduce the death benefit.

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It can take more than 10 years to build meaningful cash value, so whole life is best for long-term planners who intend to keep the policy for decades.

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Some policies let you use part of your death benefit while you're alive for long-term care, offering added flexibility compared to term life.

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What Is a Whole Life Insurance Policy?

Whole life insurance is a permanent life insurance policy that provides lifelong financial protection for your beneficiaries while building cash value you can access during your lifetime. Unlike term life insurance, which expires after a specific period, whole life insurance remains active for your entire life.

This type of life insurance policy serves dual purposes: permanent financial protection and tax-advantaged wealth building. The cash value grows without annual contribution limits like 401(k)s or IRAs, making it attractive for high earners who have maxed out other retirement accounts. You can access funds through policy loans that don't require credit checks or affect your credit score, providing financial flexibility during emergencies or opportunities.

How Whole Life Insurance Works

Whole life insurance combines a guaranteed death benefit with a cash value component that grows over time. The cash value works like a built-in savings account you can access while you're alive, through withdrawals, loans or by surrendering the policy. This feature sets whole life apart from term life insurance, which provides coverage for a limited time and has no cash value.

Most whole life policies stay in effect until death or until you reach a set age, usually 100 or 121. Because the coverage never expires and premiums stay fixed, whole life insurance is often chosen by people who want long-term stability and guaranteed lifetime protection.

Whole Life Insurance Features

Whole life insurance offers permanent financial protection with benefits that go beyond a simple death payout. From predictable premiums to cash value growth, these features help support long-term financial planning.

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    Fixed Premiums

    Premiums remain the same for the life of the policy, regardless of age, health changes or inflation. This predictability makes it easier to plan long-term and avoids unexpected cost increases later in life.

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    Cash Value

    Part of each premium goes into a cash value account that grows tax-deferred over time. You can borrow against or withdraw from this balance, but doing so can reduce the death benefit if not repaid. Interest is charged on loans until they’re repaid.

    Your cash value grows through guaranteed minimum interest rates, often 2% to 4% annually, ensuring predictable accumulation regardless of market conditions. Participating policies may also earn dividends based on the insurance company's financial performance, which can be reinvested to purchase paid-up additions. These small amounts of additional coverage increase your death benefit and cash value without requiring medical underwriting.

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    Death Benefit

    The death benefit is the amount paid to your beneficiaries when you pass away. It’s tax-free and guaranteed as long as premiums are current and any loans haven’t eroded the benefit.

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    Tax-Deferred Growth

    The cash value grows tax-deferred, meaning you won’t owe taxes unless you withdraw more than your total premium payments. This makes it a potential tool for long-term, tax-efficient savings.

Whole Life Insurance Premium Structure

Each premium payment is divided into three main components: mortality costs (the actual cost of insurance), administrative fees and cash value accumulation. Initially, most of your premium covers mortality costs and fees, but over time, a larger portion builds cash value as these costs decrease relative to your premium.

Participating vs. Non-Participating Policies

Participating policies allow you to receive dividends when the insurance company performs well financially. These dividends can be taken as cash, used to reduce premiums, or reinvested to purchase additional coverage through paid-up additions. Non-participating policies don't pay dividends but often have lower premiums and guaranteed cash value growth rates.

Payment Flexibility Options

While premiums are fixed, many policies offer flexibility after you've built sufficient cash value. You can use accumulated cash value to cover premiums during financial difficulties, skip payments occasionally or even pay larger amounts to accelerate cash value growth within IRS limits.

WHOLE LIFE INSURANCE EXPLAINED: A REAL-WORLD EXAMPLE

Here’s how whole life insurance works in practice: Suppose you buy a policy at age 40 with a $500,000 death benefit and a fixed $650 monthly premium. The policy stays in force for life as long as you make payments.

Over time, it builds cash value, which is a savings component that grows tax-deferred. By age 70, that cash value may be significant enough to borrow against or withdraw. Remember that any unpaid loans or withdrawals will reduce the death benefit your beneficiaries receive.

How Much Does Whole Life Insurance Cost?

If you're considering whole life insurance, you're likely weighing the higher costs against the permanent benefits. Whole life insurance does cost more than term life insurance because it includes permanent coverage, fixed premiums and a cash value component that builds over time.

Based on our analysis, a 40-year-old male pays $667 monthly for a $500,000 whole life insurance policy. The table below shows average rates across coverage levels and ages.

Data filtered by:Results filtered by:
Select
Age:40
Select
Gender:Male
$50,000$67$801
$100,000$133$1,602
$150,000$200$2,403
$200,000$267$3,203
$250,000$334$4,004
$300,000$400$4,805
$350,000$467$5,606
$400,000$534$6,407
$450,000$601$7,208
$500,000$667$8,009
$550,000$734$8,809
$600,000$801$9,610
$650,000$868$10,411
$700,000$934$11,212
$750,000$1,001$12,013
$800,000$1,068$12,814
$850,000$1,135$13,615
$900,000$1,201$14,415
$950,000$1,268$15,216
$1,000,000$1,335$16,017
$1,500,000$2,002$24,026
$2,500,000$3,337$40,043

*The rates above are based on average quotes for nonsmokers with average weight and health ratings. Your actual life insurance costs will depend on your coverage needs, age, gender, lifestyle and health.

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CHOOSING THE BEST WHOLE LIFE INSURANCE

The best whole life insurance company depends on your individual priorities. Some insurers excel in financial stability with top AM Best ratings, while others offer competitive premiums or superior customer service. Key factors include the company's claims-paying ability, policy features, premium costs and customer satisfaction scores.

If you prioritize financial strength, look for A++-rated insurers. For cost-conscious buyers, compare premiums from multiple highly rated companies. Customer service also matters. Some insurers offer 24/7 support and online portals, while others focus on local agents.

For detailed company comparisons and our analysis of top providers, see our best whole life insurance companies guide.

Whole Life Insurance Policy: Factors That Affect Cost

Whole life insurance costs more than term life insurance because it includes permanent coverage, fixed premiums and a cash value component that builds over time. Your premium for whole life insurance will depend on several personal factors, including your age, health and coverage amount. Here’s what insurers consider when setting your rate:

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    Age

    Generally, the younger you are when purchasing a policy, the lower your premiums may be. Age plays a significant role, as insurers assess the risk of insuring an individual over a lifetime.

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    Health

    Your overall health condition can impact whole life insurance premiums. A healthy individual will likely pay less than someone with existing health issues.

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    Coverage Amount

    The death benefit amount you choose directly affects your costs. A higher coverage amount means higher premiums.

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    Gender

    Statistically, women tend to live longer than men, which can result in slightly lower whole life insurance premiums for female policyholders.

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    Lifestyle Choices

    Habits like smoking or engaging in high-risk activities can lead to higher premiums.

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    Policy Features

    Additional features or riders attached to the policy can also influence the cost.

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    Occupation

    High-risk occupations such as commercial fishing, logging or aviation may result in higher premiums or require specialized coverage.

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    Payment Frequency

    Annual premium payments can help lessen the cost compared to monthly payments due to reduced administrative costs.

Consider consulting with a financial professional to understand the specific costs based on your needs and preferences. Make sure the policy aligns with your long-term financial goals.

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COMPARE PERSONALIZED QUOTES

Get quotes from multiple reputable insurers before choosing a whole life policy. Comparing options can help you find the best balance of cost, coverage and long-term value.

Whole Life Insurance Pros and Cons

Whole life insurance is an excellent option for many people with long-term financial needs, but it's not right for everyone. Here's what you need to know about whole life insurance:

Pros of Whole Life Insurance

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Lifelong Coverage That Doesn’t Expire

Whole life insurance lasts as long as you live, often up to age 100 or 121, as long as premiums are paid. If the policy lapses, you may still access any remaining cash value.

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Guaranteed Payout for Your Beneficiaries

The death benefit is tax-free and guaranteed, no matter when you pass away, as long as the policy is in force.

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Access to Funds While You’re Alive

Optional riders can let you use part of the death benefit for needs like long-term care. This can offer more flexibility than standalone long-term care insurance.

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Tax-Free Policy Loans

You can borrow against your policy’s cash value without paying taxes, though unpaid loans reduce the death benefit.

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Simple, Predictable Terms

Premiums, interest rates and benefits are fixed. Your costs and coverage stay consistent.

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Built-In Financial Protections

Policies have guaranteed minimum interest rates on cash value growth and caps on insurer expenses, providing stability over time.

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Payment Flexibility in Tough Times

If needed, you can use your accumulated cash value to cover premiums and keep your policy active.

Cons of Whole Life Insurance

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Much Higher Premiums Than Term Life

Whole life can cost five to 15 times more than term, which may not make sense if you only need coverage for a set period.

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Slow to Build Value

It can take years to accumulate meaningful cash value. If you cancel early, the policy may have little or no surrender value.

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Early Withdrawals Can Be Costly

Most policies have surrender charges if you withdraw cash value within the first several years.

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You Can’t Borrow Until You've Built Enough

Policy loans require a minimum balance (often $10,000) and several years of ownership.

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Lack of Fee Transparency

It’s hard to know how much of your premium goes toward fees, commissions or savings, and insurers aren’t required to provide a breakdown.

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WHOLE LIFE SURRENDER CHARGES

Whole life insurance policies often include surrender charges if you access or fully surrender the policy’s cash value in the early years. These charges decline over time and eventually disappear, but the schedule depends on the insurer and contract.  Some policies eliminate charges in as few as seven years, while others may extend to 15 or even 20 years.

Because surrender fees and timelines differ by policy, reviewing your contract’s surrender charge schedule is essential before making withdrawals or considering a full surrender.

Tax Benefits of Whole Life Insurance

Whole life insurance offers significant tax advantages that make it attractive for long-term wealth building and estate planning strategies.

  1. Tax-Deferred Cash Value Growth: Your policy's cash value grows without annual tax obligations, similar to a 401(k) or IRA. Unlike retirement accounts with contribution limits, whole life insurance has no annual caps on premium payments, making it valuable for high earners who have maxed out other tax-advantaged accounts.
  2. Tax-Free Policy Loans: You can borrow against your cash value without triggering taxable income, regardless of the loan amount. Unpaid loans reduce your death benefit and can cause policy lapse if the outstanding balance exceeds the cash value.
  3. Tax-Free Death Benefits: Beneficiaries receive the death benefit income tax-free, providing immediate liquidity for estate expenses, mortgage payments, or ongoing family needs.
  4. Estate Planning Advantages: Whole life insurance can help reduce estate taxes by providing liquidity to cover tax obligations without forcing asset sales. When held in an Irrevocable Life Insurance Trust (ILIT), the death benefit may be removed from your taxable estate entirely.
  5. MEC Rules and Consequences: Policies that receive excessive premium payments become Modified Endowment Contracts (MECs), losing tax-free loan benefits. MEC withdrawals and loans become taxable and subject to 10% penalties before age 59½, similar to early retirement account withdrawals.

Who Should Get Whole Life Insurance?

Whole life insurance can be a good fit if you need permanent coverage and want to build cash value over time. It’s often used for long-term goals like estate planning, supporting a dependent or creating a tax-advantaged savings tool. Here’s who it tends to work best for:

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    People With Large Estates

    If your estate may be subject to taxes, a whole life policy can help your beneficiaries cover those costs. The tax-free death benefit provides liquidity, making it easier to preserve assets and pass them on without triggering a forced sale.

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    Parents of Lifelong Dependents

    If you care for a child or family member who will need ongoing financial support, whole life insurance offers a guaranteed payout no matter when you die. It also builds cash value you can tap into while you’re still living, if needed.

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    Those Preparing for Long-Term Care Costs

    Some policies allow you to add long-term care coverage, letting you use part of your death benefit for care expenses not covered by health insurance. Terms vary by insurer, so review conditions carefully.

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    High Earners Seeking Tax-Deferred Growth

    If you’ve maxed out your 401(k) or IRA, whole life insurance can be an additional place to grow money tax-deferred. You can also borrow or withdraw from the cash value without paying taxes as long as the policy stays in force and loans are managed properly.

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    Business Owners With Succession or Loan Needs

    Business owners often use whole life insurance for key person coverage, succession planning or as loan collateral. It provides financial continuity in the event of a founder’s death and helps protect the company’s value.

Whole vs. Term Life Insurance

Term and whole life insurance serve different needs. Term life insurance is designed for temporary coverage at a lower cost, while whole life offers lifelong protection and a built-in savings component. Here's how they compare:

Coverage Duration

Lasts for a set term (e.g., 10, 20 or 30 years); expires if you outlive the term.

Offers lifelong coverage as long as premiums are paid.

Cost

Lower premiums, especially for younger and healthy applicants.

Higher premiums due to permanent coverage and cash value features.

Cash Value

No cash value; purely provides a death benefit.

Builds cash value over time that you can borrow from or withdraw.

Best For

Short-term needs like mortgage protection or raising children.

Long-term goals like estate planning, legacy building or tax-advantaged savings.

If you need affordable coverage for a limited time, term life may be a better fit. If you want permanent financial protection with fixed premiums and cash value growth, whole life insurance may better support your long-term financial goals.

Whole vs. Universal Life Insurance

Whole life and universal life insurance both offer permanent coverage, but they serve different financial needs. Whole life provides guaranteed stability, while universal life offers flexibility and growth potential. Here's how they compare:

Premiums

Fixed, level payments throughout life

Flexible payments that can be adjusted up or down

Interest Rate

Guaranteed minimum rate set by insurer

Current market rates that fluctuate over time

Cash Value Growth

Guaranteed growth with potential dividends

Varies with interest rate changes and market conditions

Investment Control

None; insurer manages all investments

Limited control over crediting rates

Risk Level

Low risk with guaranteed returns

Moderate risk with market exposure

Best For

Predictable, conservative long-term planning

Flexible coverage needs with growth potential

If you want guaranteed cash value growth and predictable premiums that never change, whole life offers maximum stability and simplicity. If you prefer flexibility to adjust premiums and death benefits based on your changing financial situation, universal life may better suit your needs.

Types of Whole Life Insurance

Whole life policies fall into two main categories: participating, which may pay dividends, and non-participating, which offer fixed benefits without profit sharing. Below are common policy types, each suited to different financial goals and coverage needs.

Guaranteed Issue Whole Life

Guaranteed issue policies don't require a medical exam or health questions, and approval is automatic. This makes them ideal for people with serious health conditions, though they're often the most expensive type of whole life insurance.

Because coverage amounts are often small, they're also widely marketed as final expense insurance for people with serious health conditions.

Also read: Best Guaranteed Acceptance Life Insurance Companies (2025)

Simplified Issue Whole Life

These policies skip the medical exam but include a few health questions. They're more affordable than guaranteed issue policies and are commonly used for final expense planning.

Coverage is typically limited, and insurers commonly sell these policies as a type of final expense insurance.

Also read: Best Final Expense/Burial Insurance Companies in 2025

Non-Participating Whole Life

These policies offer guaranteed premiums, death benefits and cash value. However, they don't pay dividends. Everything is fixed when you purchase the policy and won't change over time.

Participating Whole Life

Participating policies may pay dividends if the insurer performs well financially. Dividends can be taken as cash, used to lower premiums or reinvested to grow your coverage. These policies are only available through mutual life insurance companies.

Indeterminate Premium Whole Life

This policy has adjustable premiums that can change based on the insurer's performance, but your costs will never exceed the maximum stated in the contract. It's like a hybrid between fixed and variable pricing.

Limited Payment Whole Life

You pay off the policy in a set number of years (often 10, 15 or 20) instead of paying for life. Once fully paid, the coverage and cash value continue, making it appealing for those who want to front-load their payments.

Single Premium Whole Life

With this policy, you make one large upfront payment and never pay again. The policy builds cash value quickly since the entire premium is invested immediately. This option appeals to wealthy individuals looking for tax-advantaged estate planning or those with a large sum to invest.

Many of these policies are classified as Modified Endowment Contracts (MECs) under IRS Section 7702A because they fail the “7-pay test.” That means withdrawals are taxed as income first rather than as a tax-free return of premium. Early surrenders also trigger significant penalties.

Joint/Survivorship Whole Life

Also called second-to-die insurance, these policies cover two people (typically spouses) and pay the death benefit after both insureds die. Premiums are lower than two individual policies since the insurer doesn't pay until the second death. Married couples often use survivorship policies for estate planning, ensuring funds are available to pay estate taxes or provide an inheritance for children.

Whole Life Insurance Riders

Whole life insurance riders let you customize your policy to meet specific needs. These optional add-ons provide additional coverage or benefits for an extra cost, making your policy more comprehensive.

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    Waiver of Premium Rider

    Covers your premium payments if you become disabled and can't work. This rider keeps your policy active without you paying out-of-pocket, preserving both your death benefit and cash value growth during disability periods.

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    Accidental Death Benefit Rider

    Provides an additional death benefit if you die from a covered accident. This rider provides extra financial protection for your family during your highest-earning years, costing approximately 5% to 10% of your base premium.

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    Accelerated Death Benefit Rider

    Allows you to access a portion of your death benefit while living if diagnosed with a terminal illness. This rider helps cover medical expenses and end-of-life care costs, providing financial relief during difficult times.

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    Long-Term Care Rider

    Lets you use part of your death benefit to pay for qualified long-term care expenses like nursing home care or home health services. This rider can be more cost-effective than standalone long-term care insurance.

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    Term Insurance Rider

    Adds temporary coverage for family members, such as your spouse or children. This rider provides affordable additional protection during the years when your family's financial needs are highest.

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    Paid-Up Additions Rider

    Allows you to purchase additional whole life insurance with your dividends, increasing both your death benefit and cash value.

How to Buy Whole Life Insurance

Getting whole life insurance involves a clear set of steps that help you secure lasting financial protection. Knowing what to expect makes the process smoother and reduces the chance of delays.

  1. 1

    Determine Your Coverage Needs

    Begin by calculating the amount of financial protection you need. Factor in outstanding debts, income replacement goals and long-term financial obligations. Many financial experts suggest 10 to 12 times your annual income, though individual needs vary.

    Use our coverage needs calculator for assistance.

  2. 2

    Compare Insurers and Request Quotes

    Look at insurers’ AM Best financial strength ratings to confirm stability. Gather quotes from at least three companies and compare premiums, features, and service quality to identify the right policy.

  3. 3

    Complete the Application

    Applicants provide details about their health history, lifestyle, income and chosen beneficiaries. Accuracy is essential because omissions could delay approval or affect claims later.

  4. 4

    Medical Exam and Underwriting

    Most policies include a paramedical exam with blood and urine tests plus basic measurements. A licensed medical professional schedules the exam at no cost. Afterward, underwriters review the results along with your application.

  5. 5

    Policy Review and Approval

    Underwriting often takes two to four weeks. Some applicants may need to submit medical records or answer follow-up questions. Once approved, the company issues your policy documents for review before you accept coverage.

The full process usually takes 30 to 60 days, depending on how quickly you complete requirements and how much additional information underwriters request. If you're healthy, your application will likely go through quickly, while those requiring records or follow-up questions may take longer.

For faster approval, some simplified issue whole life policies skip the medical exam in favor of limited health questions, but they generally offer lower coverage amounts and higher premiums than traditional whole life.

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DOCUMENTS TO PREPARE

Keep these items ready to move through the process smoothly:

  • Driver’s license or state ID
  • Social Security card
  • Recent pay stubs or tax returns
  • List of current medications
  • Contact information for your doctor
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What Is Whole Life Insurance and How Does It Work: Bottom Line

Whole life insurance offers permanent coverage, fixed premiums and a cash value component that grows over time. It can provide long-term financial stability, tax advantages and a guaranteed payout for your beneficiaries. While it costs more than term life, it may be worth it if you need lifelong financial protection and want to build savings within your policy. Make sure the long-term benefits align with your budget and goals before committing.

Before buying a life insurance policy, compare quotes from multiple insurers, understand all policy features and limitations, and consider consulting with a qualified financial advisor to ensure the coverage fits your overall financial strategy.

Whole Life Insurance Definition: FAQ

Buying whole life insurance is meant to be a lifelong decision. Don’t commit to whole life insurance without finding answers to all your questions. MoneyGeek included some of the most commonly asked whole life insurance questions below to help you decide if this coverage is right for you.

What is whole life insurance?

How does whole life insurance work?

What does whole life insurance cover?

Should I buy whole life insurance?

Is whole life insurance a good investment?

What are the benefits of whole life insurance?

How long do you pay for whole life insurance?

What kind of premium does a whole life policy have?

What types of riders can I add to whole life insurance policies?

Does whole life insurance have a cash value?

When is the face amount of a whole life policy paid?

Is whole life insurance worth it?

What is the best whole life insurance?

At what point does a whole life insurance policy endow?

How does whole life insurance work as an investment?

What happens to the face amount of a whole life policy if the insured reaches the age of 100?

When would a 20-pay whole life endow?

Can you pay off a whole life insurance policy early?

Do whole life insurance premiums increase?

Whole Life Insurance Quotes: Our Review Methodology

Whole life insurance decisions feel overwhelming with permanent coverage lasting decades and cash value components that vary between companies. We analyzed 248,399 quotes to calculate average whole life insurance rates. We collected quotes from 16 major insurers to show how much you'd likely pay based on your coverage needs and profile.

Our standard quote profile:

  • 40-year-old male
  • Nonsmoker
  • 5'9", 160 pounds
  • Average health

We also gathered quotes for different ages, genders, health ratings, and coverage amounts to reflect various consumer scenarios.

Coverage costs and company data were last updated in 2025.

We analyzed pricing trends and policy features across all quote data to identify consistent patterns and surface options that offer strong value, not just the lowest price. This approach helps you find whole life insurance that provides reliable financial protection for your beneficiaries while building cash value you can access during your lifetime.

Whole Life Insurance Policies: Related Articles

About Mark Fitzpatrick

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Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.

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