Whole life insurance protects your loved ones for a lifetime
We’ll help you find the whole life insurance policy that fits your budget and meets your financial goals.
What is whole life insurance?
Whole life insurance is the most common and least complex type of permanent life insurance. Whole life insurance will stay in place your entire life regardless of your health and the premium amounts are fixed and won’t change.
In addition to lifelong coverage, whole life insurance comes with a savings component that accrues cash value. Because of these features, whole life insurance is typically 10-15 times more expensive than term life insurance.
Whole life insurance also has two different types of policies: Non-participating and participating, which we’ll explain below.
Is whole life insurance the same thing as permanent life insurance?
Whole life insurance is just one type of permanent life insurance. It’s often used synonymously because whole life insurance is the oldest and most basic form as well as less confusing than the other permanent life insurance options.
In addition to whole life insurance, universal life insurance is one of the most popular types of permanent life insurance. There are several other permanent life insurance options available, each with features that are beneficial to unique scenarios.
The different types of permanent life insurance
- Whole life insurance
- Universal life insurance
- Variable life insurance
- Variable universal life insurance
- Indexed universal life insurance
- Guaranteed universal life insurance
- Guaranteed issue life insurance
Types of Whole Life Insurance
There are two basic types of whole life insurance: participating and non-participating whole life insurance. The difference between non-participating and participating whole life insurance is that with participating whole life insurance, the policyowner participates in favorable investment earnings and mortality savings by the insurance company.
These favorable earnings come in the form of dividends, usually paid out annually by the insurance company. You have options as to how you prefer to receive and use these dividends for your whole life insurance policy.
Whole life insurance dividends can be:
- Received as cash
- Used to reduce your premium payments
- Used to buy fully paid-up insurance
- Left with the insurance company to earn interest (like a savings account)
- Used to buy term life insurance
- Used to overpay premiums and make your policy paid-up faster
Participating whole life insurance policies have slightly higher premiums than non-participating whole life insurance policies. This is because the insurance companies have an intent to return part of the premium in the form of dividends. However, dividend amounts cannot be guaranteed.
How does whole life insurance work?
A whole life insurance policy works like a standard contract, where a person makes payments to an insurance company for a policy that will provide a set amount of money (death benefit) to whomever (beneficiaries) the insured chooses. It also provides financial benefits to the policyowner, like cash value that they can access while they’re still living.
Consider whole life insurance if you wish to:
- Build tax-free wealth
- Equalize an inheritance without selling a family farm or business
- Leave a guaranteed inheritance to your loved ones
- Provide long-term care for someone with special needs or a disability
A whole life insurance policy is permanent and pays a death benefit (the face amount minus any applicable policy loans) to the policy’s beneficiary(ies) when the insured person dies.
Not sure how much whole life insurance you need?
How does the cash value of a whole life insurance policy work?
The cost to keep a whole life insurance policy active is called your premium. A portion of each premium payment is put toward the actual cost of life insurance (the death benefit that your beneficiaries receive when you die). The rest of the premium is put into a separate account that’s used to build cash value.
The cash value of a whole life insurance policy grows at a guaranteed rate set by the insurance company and not tied to market-driven investments, but has the potential to grow even more based on dividends. Because of this, whole life insurance cash value grows at a slower rate but has no risk.
The cash value that accumulates can be used as surrender values, paid-up insurance or extended term insurance. You can also take out policy loans against the cash value and make partial withdrawals.
What are whole life insurance surrender values?
Permanent life insurance policies have nonforfeiture provisions. These provisions state that a policyowner has a right to a fair share of the insurance policy’s value if they decide to cancel it. The fair share is called the surrender value. The surrender value is your cash value minus any applicable surrender fees and outstanding policy loan balances.
Many insurance companies do not grant cash surrenders until a certain number of years have passed, typically three years. Depending on how long your policy has been active, there may or may not be a surrender fee. If the cash surrender value is more than the total amount of premiums you’ve paid, the difference is considered income and taxed.
What is paid-up whole life insurance?
Instead of surrendering a whole life insurance policy for cash, you can opt to use the cash value to purchase a paid-up whole life policy. This means the policy will stay active without having to make any payments. The coverage amount of the new policy will be whatever your cash value can purchase as a single premium and the cost will be based on your current age.
What is extended term insurance?
Another alternative to surrendering your whole life insurance policy for cash, is to purchase a paid-up term life insurance policy. The face amount of your whole life insurance policy will determine the coverage amount (minus any loan balances) of the term policy.
The term length will be whatever can be purchased with the cash value as a single premium (minus any loan balance). Typically, this option is more for those who are terminally ill and will not be living much longer.
What are whole life insurance policy loans?
Policy loans give policyowners access to the cash value without terminating the policy. Your policy is collateral for your loan. The policyowner requests the amount they want to borrow against the cash value and the life insurance company will lend it confidentially, meaning it won’t go on your credit report.
You can take out more than one policy loan as long as the total amounts and accrued interest do not exceed the policy cash value. If the loans and accruing interest ever exceeds the cash value the policy will terminate.
You are not required to pay back the policy loan while you are alive, but the balance will continue to accrue interest. If you do not pay it back, the balance will be taken from your policy’s death benefit when you die. This reduces how much your beneficiaries receive.
Taking out policy loans will slow down how quickly the cash value accumulates and reduce policyowner dividends (if it’s a participating whole life insurance policy). These consequences occur because the policy loans affect how much the insurance company can invest to earn income.
What are whole life insurance partial withdrawals?
You can make partial withdrawals from the cash value in your whole life insurance policy. The amount you have paid into the policy (total premium amount thus far) is the maximum amount you can withdraw tax-free. Any amount over the cumulative premiums can be taxed.
Partial withdrawals are not paid back, they’re permanently subtracted from the cash value and the death benefit. This means there is now less cash value left to earn dividends, accumulate, and borrow against.
What is the difference between whole life insurance and term life insurance?
The main difference between term life insurance and whole life insurance is how long the coverage lasts, the different features, and the cost. Term life insurance is temporary and can range from 10 to 40 years and is the best and most affordable option for families.
Whole life insurance has lifelong coverage, a savings component that accrues cash value, and can be a better fit for those with long-term financial goals or obligations. Because of the added features and length of coverage, whole life insurance is 10-15 times more expensive.
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|Term Life Insurance||Whole Life Insurance|
|Coverage length||5, 10, 15, 20, 25, 30, 35, or 40 years||Entire life|
|Coverage amount||$50,000 – $65M+||10,000 – $65M+|
|Cost||$ can fit into most budgets||$$$ can fit into some budgets|
How much are whole life insurance rates?
Whole life insurance is significantly more expensive than term life insurance because of its benefits like lifelong coverage, cash value accumulation, and potential dividends. On average, whole life insurance rates are about 10-15 times higher than term life insurance rates.
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|Whole Life Insurance Monthly Rates|
|Male age 30||$258.63||$510.66||$1,014.72|
|Female age 30||$227.07||$447.54||$888.47|
|Male age 40||$374.10||$741.60||$1,476.59|
|Female age 40||$324.60||$642.60||$1,278.60|
|Male age 50||$567.39||$1,128.19||$2,249.77|
|Female age 50||$483.52||$960.43||$1,914.27|
Questions? Talk with our experienced advisors.
Is whole life insurance worth it?
Most people only need term life insurance. It’s the more affordable type of life insurance and can be customized to meet your current budget. Plus, you can make investments with the money you’d save with term. However, there are a number of scenarios where whole life insurance should be considered. Whole life insurance can be beneficial in these situations:
If you care for a loved one with a disability or special needs.
If you have dependents who will rely on you long-term, then a whole life policy would be better. Term life insurance is temporary, but whole life insurance can last as long as you need it to.
If you have a large estate.
As of 2021, the estate tax lifetime exclusion amount is $11.7 million. In other words, an individual may gift or transfer up to $11.7 million throughout their entire life time (and at death) without incurring any gift or estate tax. However, if your estate is worth more than this, whole life insurance can provide money to your heirs to pay estate taxes so they are not forced to sell off parts of the estate.
If you are not a financially disciplined.
Term life insurance is inexpensive so, for most people, it makes sense to own term and put the difference into savings or investments. However, this only works if you actually save. If you are not great at putting away money, a whole life insurance policy can force you into saving. Whole life insurance policies build cash value that you can borrow or withdraw from should you need it.
If you own a family business.
If you have a family business and not all of your children are interested in taking it over, the proceeds from a whole life insurance policy can equalize an inheritance. The business can be left to the children who are interested and leave the death benefit for the children who are not.
Can I get whole life insurance with no medical exam?
For the most affordable whole life insurance, with the highest available insurance protection, you will want to buy whole life insurance that does require medical underwriting. Guaranteed issue life insurance is whole life insurance that does not require medical underwriting, in other words, no medical exam or medical questions.
Guaranteed issue life insurance can be purchased without any evidence of insurability. As long as you meet the product’s criteria the coverage is guaranteed. The criteria is usually an age limit (typically you must be between the ages of 50 and 80) and coverage amount
Guaranteed issue life insurance coverage amount maximums are much lower than traditional whole life insurance. You can buy millions of dollars of traditional whole life insurance but typically guaranteed issue life insurance caps out at $50,000 or so in coverage.
The premiums are much higher for guaranteed issue life insurance compared to traditional life insurance. Most individuals only buy guaranteed issue life insurance if their health is subpar. This makes them high-risk in the eyes of the life insurance company. Because the insurance company does not require any medical underwriting, they make up for the unknown risk by setting high premium amounts.
Questions about whole life insurance?
If you’re interested in whole life insurance, one of our agents will be happy to help you determine the best plan and guide you through the application process. Start by completing a form to compare whole life insurance quotes from top-rated insurance companies.
Contact us for a free, no-obligation insurance consultation with one of our experts today.