What Is Whole Life Insurance: Pros, Cons & Who Should Buy

Whole life insurance offers permanent coverage for lifelong needs, with level premiums and a death benefit. Learn how whole life works and the pros and cons of this coverage to decide if it’s the right choice for you.

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Last Updated: 5/30/2022
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There are two types of life insurance: term and permanent. While term life insurance provides temporary coverage for a set number of years, permanent life insurance offers lifetime financial protection for your family after you’re gone. Whole life is a type of permanent life insurance commonly used to pay for funeral costs, end-of-life expenses and outstanding debts.

In short, whole life insurance helps provide guaranteed protection for your family at a time when money is the last thing they want to worry about. Learn more about the benefits of whole life insurance and how to find the right plan and provider for you and your family's needs.

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Key Takeaways

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Whole life insurance offers a level premium and death benefit for the rest of your life with a built-in savings account.

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Whole life is an excellent choice for those doing long-term estate planning, supporting a lifelong dependent or owning their own business.

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If you decide you no longer need your whole life policy, you can surrender it and keep the cash value amount.

What Is Whole Life Insurance?

Whole life insurance essentially offers you two financial products: life insurance and a savings account. Sometimes called "straight life," "ordinary life" or "continuous premium life insurance," it's a type of permanent life insurance that offers fixed premiums, a fixed death benefit and cash value.

Cash value, also called surrender value, is the part of the death benefit received when the policy is canceled. It's also a key feature of permanent life insurance plans that distinguishes them from term life insurance.

Because whole life is permanent, the policy is active your entire life or until a specified age — usually 100 to 121 years old — as long as you pay your premiums on time. These premiums, minus insurance costs and expenses, are deposited by your insurer into your cash value account. While premiums for whole life are much higher than premiums for term life, whole life can be an excellent financial investment for those who want guaranteed lifetime coverage.

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How Does Whole Life Insurance Work?

Whole life insurance offers permanent coverage that lasts your lifetime. Your chosen beneficiary or beneficiaries will receive the death benefit amount when you die. This type of insurance includes:

  • Fixed Premiums: Your premiums will be the same for life, regardless of age, health and inflation.
  • Face Value Death Benefits: As long as you pay premiums on time and don't have any outstanding policy loans, your beneficiaries will receive the face amount of the policy when you die, tax-free.
  • Tax-Free Cash Value: The cash value, or savings component of your policy, will grow each year without taxation. This cash is also yours, meaning you can access it via loan and withdrawal options. You would only be taxed if you withdrew more than what you put into the policy. However, making a loan against the cash value will reduce your death benefit if not paid back, and you'll also be charged interest on the loan to make up the difference.

Types of Whole Life Insurance

There are two main options for traditional whole life insurance: non-participating and participating. Below are eight different variations that you can choose from depending on your unique needs and policy goals.

1

Guaranteed Issue Whole Life

Though it’s often the most expensive form of whole life insurance, guaranteed issue is sometimes the only option for people with severe health conditions. There are no health questions or medical exams to complete, and acceptance is guaranteed.

2

Simplified Issue Whole Life

This whole life policy has a few health questions to answer but no medical exam to complete. If you have certain pre-existing conditions, this final expense whole life insurance policy is cheaper than guaranteed issue whole life.

3

Non-Participating Whole Life

Non-participating whole life insurance policies don't pay dividends to the policyholder. Dividends are the money the company has left over from collected premiums after overhead expenses and claims are paid. Your insurance company will set the fixed premium, death benefit and cash value when you purchase the policy, and these amounts will not change for the policy’s duration.

4

Participating Whole Life

Simply put, participating whole life insurance is the opposite of a non-participating policy. When the company does well in terms of investment earnings, mortality and expense costs, you'll receive dividends in cash, reduced premium payments, accumulated interest or additional paid-up insurance. Dividends come from a mutual life insurance provider, so seek out a mutual company if this is important to you.

5

Indeterminate Premium Whole Life

This type of policy is similar to non-participating whole life, except it offers adjustable premiums. You'll be charged a premium based on the insurance company's investment earnings, mortality and expense costs. If those numbers change, your premium will be adjusted accordingly but will never exceed the maximum premium stated in your policy.

6

Economatic Whole Life

Economatic whole life insurance combines participating whole life and supplemental coverage — usually decreasing term life and paid-up additional insurance — through the use of dividends.

7

Limited Payment Whole Life

Under a limited payment policy, you can pay premiums over a shorter period but still get lifetime coverage. However, because you'll be making fewer payments, these amounts will be higher than you typically pay under a continuous premium plan. Cash value will continue to accrue even after premiums are paid up.

8

Single Premium Whole Life

As the name suggests, a single premium policy means you'll only pay one large premium at the time of policy inception. After that, the policy is considered fully paid, and no further payments are required. However, many companies will enforce substantial charges if you wish to cash in the policy during the first few years.

Pros & Cons of Whole Life Insurance

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

Pros of Whole Life Insurance

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    Coverage for Your Entire Life

    Whole life insurance covers you for your entire life — or until age 100 or 121 — as long as you continue to pay premiums on time. Even if you let your policy lapse, you'll still have access to its cash value as long as the policy wasn't drawing from the investment to cover premium payments.

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    Continuing Death Benefit

    With whole life insurance, your heirs will inherit the value of your policy tax-free no matter how long you live.

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    Riders Can Make Some Funds Available While You’re Alive

    You can include a rider in the policy that will let you start drawing part of the death benefit for long-term care needs. This has an advantage over a long-term care policy, which has a waiting period for receiving benefits.

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    Ability to Borrow Against Your Policy

    You can borrow against your policy tax-free, up to the amount of the cash value.

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    Straightforward Coverage

    You know precisely what you get with whole life insurance: a locked-in premium, fixed interest rate on your cash value and terms that don’t change.

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    Guaranteed Maximum Expenses and Guaranteed Minimum Interest Rate

    There is a guaranteed maximum on the expenses your insurance company can charge you and a guaranteed minimum interest rate on your cash value growth.

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    Flexibility if Your Financial Situation Changes

    If you can’t pay premiums due to financial hardships, you can use your cash value to cover payments and maintain your policy.

Cons of Whole Life Insurance

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    Expensive Premiums

    Whole life is much more costly than term life and usually more expensive than universal life insurance.

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    Takes a Significant Time to Accumulate Value

    Whole life is a long-term investment, and it can take years to build up your cash value. If you stop making payments due to financial difficulties in the first few years of your policy, its surrender value will be little or nothing. Consumer Reports notes that it can take up to 20 years of payments before the benefits of whole life significantly outweigh the benefits of term life plus alternative investment options.

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    Surrender Charges Can Be Expensive

    There is a surrender period, usually during the first few years, which means you'll have to pay a surrender charge if you want to withdraw your cash value during this time.

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    Can Only Borrow Once You Meet Minimum Balance Requirements

    To take out a loan against your policy, a minimum balance is typically required (usually around $10,000), and you must have had your policy for a specified amount of time (usually at least five years).

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    Difficult to Hold Providers Accountable

    Despite disclosure regulations, insurance companies are not required to disclose management fees, rate of return, sales commissions and how much of your premium goes toward your savings component.

How Much Does Whole Life Cost?

The cost of whole insurance varies widely and is based on several factors:

  • Age
  • Health
  • Lifestyle
  • Hobbies
  • Occupation
  • ZIP code
  • Amount of coverage
  • Type of whole life policy

Just like other types of life insurance, the younger and healthier you are, the better your rate. If you smoke, you’ll also pay higher rates than a nonsmoker for the same coverage. For instance, a healthy 50-year-old male nonsmoker can expect to pay about $72 a month for a $25,000 whole life policy. The same policy for a smoker would be about $91 per month.

If you’re a senior or have a severe pre-existing condition, you may only qualify for a guaranteed issue final expense whole life policy. Coverage maximums tend to be low for this type of whole life insurance, limited to $25,000 with most companies, though some will offer up to $50,000. A 50-year-old male purchasing a $10,000 guaranteed issue policy can expect to pay between $20 and $55 a month.

Compare Life Insurance Rates

Ensure you’re getting the best rate for your life insurance. Compare quotes from top providers to find the most affordable life insurance coverage for your needs.

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Insurance Rates

Should You Buy Whole Life Insurance?

In most cases, people purchase whole life insurance because they want lifetime protection for their loved ones and money to supplement retirement and other savings.

Buying whole life insurance is a personal choice, and whether or not you would benefit from coverage depends on a mix of factors, including your age and finances. However, some individuals may get more value out of a whole life policy than others. Below is a closer look at the different types of people and situations that may be ideal for whole life.

Individuals That Benefit Most from Whole Life Coverage
  • Buyer Profile
    How They Benefit
  • Business Owners
    In most cases, people buy whole life insurance on themselves so their loved ones are taken care of in the event of their death. However, if you have insurable interest, you can buy a policy on another person. Insurable interest protects against the loss of someone else, such as a business partner or spouse, that could undermine your finances. It can provide income replacement should your business partner or a key employee die unexpectedly or provide funds to buy out the heirs of your deceased partner.
  • Those Interested in Estate Planning
    Let's say you have a pension plan and have accumulated assets that can generate income after you die. If your estate's net value is more than the set exempt amount at the time of your death, it will be subject to estate tax. A whole life insurance plan can help your beneficiaries pay for these taxes.
  • Those Looking for Additional Tax-Free Investment Opportunities
    One of the most appealing features of whole life is the cash value that grows tax-free. If you've already maxed out on other investment options, such as 401(k)s and individual retirement arrangements, the cash value benefit plus dividends of a whole life insurance plan are excellent additions to your retirement and investment nest egg. Additionally, you can withdraw or take out a loan tax-free with whole life insurance.
  • Those Supporting a Lifelong Dependent
    Dependents may need significant financial support to cover medical bills and everyday expenses after a parent's death. Whole life insurance is ideal in such situations. The policies are not only guaranteed to pay out upon the policyholder's death, but they also grow a cash value account at a guaranteed interest rate, which is available for quick liquidity.
  • People that Anticipate a Need for Long-Term Care
    One of the most attractive features of whole life policies is the long-term care rider. This rider allows you to access some or all of your policy’s death benefit to pay for long-term care costs not covered by health insurance while you’re still alive. Keep in mind that prices and terms and conditions vary by insurer.

Term vs. Permanent Life Insurance

Consider your life insurance needs before you decide to purchase term or permanent life insurance. If you have temporary needs — like paying off loans or a mortgage — term would be a better choice. Term life insurance offers temporary coverage with level premiums for a set number of years, making term much more affordable than permanent life insurance.

However, if you have permanent needs, like supporting a dependent adult or paying for funeral expenses, permanent life insurance may be the best option for you. Though it’s more expensive, you lock in level premiums and death benefit coverage for the rest of your life. Permanent life insurance also comes with a cash value savings account you can use while you’re still alive.

Frequently Asked Questions About Whole Life Insurance

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

About the Author


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Mandy Sleight is a professional freelance writer and licensed insurance agent. She has her property, casualty, life, and health licenses and has been working in the industry since 2005. Mandy has worked for well-known insurance companies like State Farm and Nationwide Insurance, and most recently as the Operations Coordinator for a start-up employee benefits company.

Mandy earned her Bachelor of Science degree in Business Administration and Management from the University of Baltimore and her Master in Business Administration from Southern New Hampshire University. She uses her vast knowledge of the insurance industry and personal finance combined with her writing background to create easy-to-understand and engaging content to help readers make smarter choices with their budget and finances.


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