What Is Whole Life Insurance and How Does It Work? (2025)

Key Takeaways

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.

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.

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

What Is Whole Life Insurance?

Whole life insurance is a permanent life insurance policy that offers coverage for your entire life, as long as premiums are paid. It combines a guaranteed death benefit with a cash value component that grows over time.

The cash value acts 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 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.

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.

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.

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.

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 Policies: Pros and Cons

Whole life insurance is an excellent option for many people with long-term financial needs. However, it's not right for everyone. Learn more about the pros and cons of whole life insurance below.

Pros

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.
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.
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.
Tax-Free Policy Loans: You can borrow against your policy’s cash value without paying taxes, though unpaid loans reduce the death benefit.
Simple, Predictable Terms: Premiums, interest rates and benefits are fixed. Your costs and coverage stay consistent.
Built-In Financial Protections: Policies have guaranteed minimum interest rates on cash value growth and caps on insurer expenses, providing stability over time.
Payment Flexibility in Tough Times: If needed, you can use your accumulated cash value to cover premiums and keep your policy active.

Cons

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.
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.
Early Withdrawals Can Be Costly: Most policies have surrender charges if you withdraw cash value within the first several years.
You Can’t Borrow Until You've Built Enough: Policy loans usually require a minimum balance (often $10,000) and several years of ownership.
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.

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:

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.

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.

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.

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.

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.

MONEYGEEK EXPERT TIP

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.

Term Life Insurance vs. Whole Life Insurance

Term and whole life insurance serve different needs. Term life 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:

Feature	Term Life Insurance	Whole Life Insurance
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 protection with fixed premiums and cash value growth, whole life insurance may better support your long-term financial goals.

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 seven common policy types, each suited to different financial goals and coverage needs.

Policy Type	Description
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.
Simplified Issue Whole Life	Simplified issue policies skip the medical exam but include a few health questions. They’re typically more affordable than guaranteed issue policies and are commonly used for final expense planning.
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 it’s 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 payment upfront and never pay again. It builds cash value quickly, but surrendering it early can trigger large penalties and potential tax consequences.

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:

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.

Health

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

Coverage Amount

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

Gender

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

Lifestyle Choices

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

Policy Features

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

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

Whole Life Insurance Explained

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 $300 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.

What Is a Whole Life Insurance Policy: 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 protection and want to build savings within your policy. Make sure the long-term benefits align with your budget and goals before committing.

Life Insurance Whole Life: FAQ

Buying whole 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?

Whole life insurance is a permanent life insurance policy offering lifelong coverage, fixed premiums and a cash value component. It provides financial security and support for beneficiaries.

How does whole life insurance work?

Whole life insurance combines insurance coverage with a savings element, where part of the premium contributes to building cash value over time, alongside providing a guaranteed death benefit.

What does whole life insurance cover?

Whole life insurance covers the policyholder for their entire life, providing a death benefit to beneficiaries and potentially covering costs like estate taxes and debts through its cash value.

Should I buy whole life insurance?

Whole life insurance offers coverage for life, so it’s best for people who need to cover permanent financial needs. If you want to pay for your funeral and any debts you have, no matter your age at death, a whole life insurance policy may be the right fit.

Is whole life insurance a good investment?

Considering its cash value component and potential for dividends, whole life insurance can be a good investment if you are looking for a conservative financial tool within a broader portfolio.

What are the benefits of whole life insurance?

The benefits of whole life insurance include guaranteed lifetime coverage, fixed premiums, cash value accumulation and the potential for dividends, all of which contribute to financial security and flexibility.

How long do you pay for whole life insurance?

You pay premiums on a whole life insurance policy typically until death or a specified age, usually 100 to 121, with some policies offering options to pay them off earlier for lifelong coverage.

What kind of premium does a whole life policy have?

Whole life insurance premiums are fixed. They do not increase with age or health changes, making it easier for policyholders to plan long-term finances.

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

Riders are optional add-ons to whole life insurance policies that provide additional coverage or benefits. Common riders include long-term care, disability income, accidental death and waiver of premium. These riders allow you to customize your policy to fit specific needs, enhancing protection and flexibility in various life situations.

Does whole life insurance have a cash value?

Yes, whole life insurance includes a cash value component that grows over time, offering policyholders an accessible financial resource during their lifetime.

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

The face amount of a whole life insurance policy is paid upon the policyholder's death, providing beneficiaries with a tax-free death benefit, financial support and security.

Is whole life insurance worth it?

For those seeking long-term financial stability and a way to leave a legacy for their beneficiaries, a whole life insurance policy is worth it due to its permanent coverage and cash value benefits.

What is the best whole life insurance?

The best whole life insurance policy is one that fits your financial objectives, offering affordable premiums, reliable coverage and beneficial terms from a reputable insurer.

At what point does a whole life insurance policy endow?

A whole life insurance policy typically endows at the age of 100 or 120, depending on the policy. When a policy endows, the policy's cash value equals the face amount (the death benefit). If the insured is still alive at that age, the insurer may pay out the face amount as a lump sum to the policyholder.

How does whole life insurance work as an investment?

Whole life insurance functions as life insurance and an investment because it includes a cash value component that grows over time, usually at a guaranteed rate. A portion of each premium payment goes toward this cash value, which can be withdrawn or borrowed against. As the cash value grows, policyholders can use it as a source of funds or allow it to accumulate to supplement retirement income.

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

If the insured reaches the age of 100 (or the age at which the policy endows). The policy typically endows, meaning the cash value equals the face amount. Depending on the terms, the insurer may pay out the face amount to the policyholder, effectively ending the policy, or the policy may continue with the death benefit until the policyholder's death.

When would a 20-pay whole life endow?

A 20-pay whole life policy endows when the insured reaches the age specified in the policy, typically 100 or 120, even though the premiums are only paid for 20 years. After 20 years of payments, no further premiums are required, but the policy remains in force, building cash value and providing a death benefit.

Can you pay off a whole life insurance policy early?

Yes, you can pay off a whole life insurance policy early. This can be done through limited-pay policies like a 10-pay or 20-pay whole life, where you pay all the required premiums within a set number of years. After this period, the policy is fully paid, meaning no more premiums are due, but the policy remains in force for the insured's lifetime.

Do whole life insurance premiums increase?

No, whole life insurance premiums generally do not increase. The premium is fixed when the policy is purchased and remains the same throughout the policy's duration, providing predictability and stability in payments.

Whole Life Insurance Companies: Our Review Methodology

Why You Can Trust MoneyGeek?

We analyzed over 1,400 quotes and reviewed dozens of insurers using a consistent scoring model. Each company was evaluated based on its pricing, customer satisfaction, financial strength, product range and online accessibility.

Data Recency

Coverage costs and company data were last updated in 2025.

How We Rated Life Insurance Companies

We created a scoring system based on five core categories. Each insurer received up to five points per category, leading to a final MoneyGeek score out of 100. We focused on companies with broad availability and user-friendly quote processes.

Category Weighting for Whole Life Insurance

Financial Stability: 35%
Customer Satisfaction: 25%
Buying Process: 20%
Product Diversity: 20%

What Our Scores Include

Real-time quote data
Financial strength ratings from AM Best and company history
Complaint data from the NAIC (2020–2022)
Online buying experience, including tools and payment flexibility
Availability of whole life and other permanent life insurance products

Sample Customer Profile Used for Quotes

We used the following standard profile to gather quotes:

40-year-old male
Nonsmoker
5'11", 175 pounds
Excellent health

We also adjusted quotes for different ages, genders, health ratings and coverage amounts to reflect a broad range of consumer scenarios.

How We Handled the Data

We analyzed pricing trends and policy features across all quote data. This allowed us to identify consistent patterns and surface options that offer strong value, not just the lowest price.

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About Mark Fitzpatrick

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.

Read Full Bio »

Whole Life Insurance

Key Takeaways

Compare Life Insurance Rates

What Is Whole Life Insurance?

Whole Life Insurance Features

Fixed Premiums

Cash Value

Death Benefit

Tax-Deferred Growth

Whole Life Insurance Policies: Pros and Cons

Pros

Cons

Who Should Get Whole Life Insurance?

People With Large Estates

Parents of Lifelong Dependents

Those Preparing for Long-Term Care Costs

High Earners Seeking Tax-Deferred Growth

Business Owners With Succession or Loan Needs

MONEYGEEK EXPERT TIP

Term Life Insurance vs. Whole Life Insurance

Types of Whole Life Insurance

Whole Life Insurance Policy: Factors That Affect Cost

Age

Health

Coverage Amount

Gender

Lifestyle Choices

Policy Features

Whole Life Insurance Explained

Compare Life Insurance Rates

What Is a Whole Life Insurance Policy: Bottom Line

Life Insurance Whole Life: FAQ

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 Companies: Our Review Methodology

Best Whole Life Insurance: Related Articles