Whole Life Insurance: What It Is and How It Works

Shawn Plummer

CEO, The Annuity Expert

Do you want to make sure that your loved ones are taken care of financially even after you’re gone? If so, you may want to consider buying whole life insurance. Whole life insurance is a type of permanent life insurance that provides coverage for your entire lifetime. It can be a great way to protect your family’s financial future in the event of your death. In this guide, we will discuss what whole life insurance is and how it works. We will also discuss the pros and cons of buying this type of policy.

What is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance. This type of insurance provides guaranteed death benefit coverage for the life of the insured person. In addition to the death benefit, whole life insurance also contains a savings component. This component accumulates cash value over time. The interest on this cash value accumulates at a fixed rate and on a tax-deferred basis. Whole life is also known as traditional life insurance.

Whole life insurance policies are one type of permanent life insurance. This means that the policy will stay in effect until you die, as opposed to term life insurance which only lasts for a certain number of years. There are other types of permanent life insurance, such as universal life, indexed universal life, and variable universal life.

Whole Life Insurance Calculator

Find out how much life insurance you need with our whole life insurance calculator. After you determine how much coverage you need, compare quotes, and apply for a policy in minutes.

Whole Life Insurance Rates

Whole life insurance premiums, sometimes called straight life insurance, are typically fixed and do not adjust over time like universal life insurance. These are sample monthly premium rates based on age, gender, coverage amount, Preferred status, and non-tobacco consumers.


The Pros and Cons Of Whole Life


  • The coverage is for an entire lifetime and does not expire as long as you pay premiums
  • The policy is straightforward to understand.
  • Policy owners can earn a guaranteed fixed interest rate on their cash value.
  • Similar to an IRA, your policy grows tax-deferred.
  • Similar to a ROTH IRA, you can pull money out of your policy without paying taxes.
  • Unlike qualified accounts such as 401(k) and IRA’s, you can access the policy cash values pre-59.5 without incurring taxes or penalties.
  • Unlike a 401(k) and Traditional IRA, you can access the policy cash values without increasing your Social Security tax or Medicare premiums.
  • Your policy grows based on the guarantees of the insurance carrier and can grow even more based on dividends.
  • Your beneficiary receives the death benefit income tax-free.


  • The coverage is expensive.
  • Policyowners will pay higher fees.
  • The fixed interest rates can be low.

the Benefits of Whole Life Insurance

  • The life insurance coverage lasts for an entire lifetime.
  • Whole life is easy to understand.
  • Owners can earn a guaranteed fixed interest rate on their cash value like a Certificate of Deposit or Fixed Annuity.
  • Some whole life insurance accepts funding from a 401(k) or IRA.
  • Some policies allow policyowners to access the death benefit (while alive) as long-term case insurance.

Is Whole Life Insurance A Bad Investment?

Unless you require permanent life insurance coverage, whole life insurance is usually a poor investment. If you’ve already used up all of your retirement accounts and have a diverse portfolio, whole life insurance may be a smart investment if you need lifelong coverage.

Consider that whole life insurance protection is expensive and takes many years to begin generating adequate investment returns. As a result, it’s usually only a viable option if you’re young, affluent, and wish to leave money to your relatives.

How does whole life insurance work as an Investment?

When you pay premiums, some of the money goes to the cost of insurance and administrative fees. And the rest is put towards a “cash value.” This cash value can be used in many ways. For example, it could be used for retirement.

A cash value is like an investment account that you can use inside your life insurance policy. The money grows at a guaranteed rate over time. If you don’t make withdrawals, the cash value should equal the death benefit when you turn 100 years old.

A whole life insurance policy’s cash value accumulates tax-deferred, just like a 401(k) or IRA. Contributions to a whole life insurance policy are not tax-deductible.

Accessing Your Whole Life Insurance Policy’s Investment Gains

You can take out a loan where the insurer holds your money and gives you a loan with the cash value as collateral. Your cash value grows according to interest rates set in the policy. You don’t need to pay back this loan.

Policy Loans

You must pay interest on the loan, and it is added to your outstanding balance if you do not pay it off. If your financial value is insufficient, your policy expires, and you must pay taxes on the money. When you pass away, the outstanding amount will be taken from your beneficiaries’ death benefit.


When you take life insurance, you can get your dividends in cash. However, you have to pay taxes on the amount if it is more than what you have paid in premiums.


You can withdraw money from this policy. You will have to pay a fee, but you do not need to pay taxes on the money. That’s because you already paid for it with your premiums.

Sell The Policy

You can sell your insurance policy for an amount higher than its cash value but less than the death benefit. The buyer will take over paying the premium payment and become the beneficiary.

Canceling The Policy

If you no longer want to be covered, you can surrender your policy to the insurance company. It will give you the cash surrender value if you do this. However, the first ten or so years of your life insurance will have high fees for returning it, and this is one of the reasons that whole life insurance should not be considered a short-term investment.

Whole Life Insurance or Term Life Insurance?

What’s the difference between term life insurance and whole life insurance? Term life insurance provides coverage for a set period of time, typically between 10 and 40 years. Whole life insurance lasts your entire lifetime and also comes with a cash value component that grows over time.

Life insurance with a cash value aspect, such as whole life insurance, has an investment component as well as life insurance coverage. These policies’ primary aim is to pay out a death benefit to your beneficiaries when you pass away, and this benefit accounts for a substantial chunk of the life insurance cost. That is why whole life insurance and other cash value life insurance plans are not a good investment unless one of your goals is to maintain coverage for the rest of your life.

Because you’re paying for permanent coverage, additional administrative expenses, and funding the investment account over a longer period of time, premiums are frequently ten times greater than term life insurance premiums.

YouTube video

Universal Life Insurance vs Whole Life Insurance

If you’re looking for whole life insurance but want more alternatives in terms of investment and rates, universal life insurance might be a better fit. With a few key distinctions, universal policies are very comparable to whole life insurance:

  • You may use the policy’s cash value to pay a portion or all of your premiums.
  • There are minimum and maximum premiums, but you can usually pay any amount that is acceptable.
  • Premium payments are not level and can increase.
  • You may invest your cash value in a number of ways.

Traditional universal insurance (interest rates set by the insurer) is one option, indexed universal life insurance is another (allocates a stock market index), and variable universal life insurance is yet another alternative (mutual fund performance determines how much more money you’ll have).

A universal life insurance policy also has a fixed interest rate investment option, which, however, seldom pays out.

Traditional and indexed universal life insurance (IUL) is riskier and offers a greater return potential than whole life insurance. Your cash value in standard and indexed universal policies will generally have a set guaranteed yearly return, however, this can be minimal or zero.

Variable universal life insurance is a riskier choice. If you pick this, your money may go down and there are higher expenses. In addition, your investment options come with higher expenses than comparable mutual funds.

What Is Graded Whole Life Insurance?

A graded whole life insurance policy is one that pays a lower amount if you die within the first few years after purchasing an insurance policy. A graded benefit contract is one that pays a less amount if you die early in the term of coverage. Only after several years of coverage have passed does the death benefit rise to the original face value.

This is an approach utilized by life insurance providers to decrease the cost of policies for people who are considered unhealthier and might already be seeking guaranteed issue coverage. Graded benefits decrease the risk assumed by life insurance companies that accept applications from terminally ill individuals.

What is Simplified Issue Whole?

Simplified whole life insurance is a type of whole life insurance or full life insurance. It lasts your entire life. It is for people 60 and older who have health problems that make them unable to get standard coverage.

If you apply for simplified life insurance, you will not have to go through a medical exam. You may have to conduct a phone interview and only answer some health questions on an application. Because the health evaluation is not as thorough, insurers set a higher premium with less coverage.

Without a medical check, the underwriter assumes that you will be too risky to insure. But some people can’t get insured because they have disqualifying conditions. If your age and health are good, you might not be able to get insurance.

Some simplified issued whole life accepts qualified funds such as an IRA as well.

What Is Modified Whole Life Insurance?

Modified whole life insurance usually has a lower premium for the first two to three years. After that, your premiums might go up, but usually not by too much. That means you can get a higher death benefit right away, rather than buying a lesser amount and trying to increase your coverage later on.

The Best Whole Life Insurance Policies

A Cheaper Alternative

Looking for affordable whole life insurance, but can’t afford it? A cheaper alternative for consumers seeking primarily leaving a death benefit to beneficiaries, term life insurance offers coverage at a fraction of the cost.

Compare Whole Life With Other Type Of Life Insurance

Find The Best Life Insurance Coverage At The Cheapest Cost!

Compare life insurance quotes from 25 companies in seconds. Then, apply for coverage in less than 10 minutes.


Whole life insurance is a type of permanent life insurance that provides coverage for your entire lifetime. The policy is straightforward to understand and the coverage doesn’t expire. Policyowners can earn a guaranteed fixed interest rate on their cash value, which can be helpful if they need to access those funds down the line. While whole life policies are expensive, fees are typically lower than with other types of permanent life insurance policies. That said, the fixed interest rates offered by insurers can be low, so it’s important to shop around before buying a whole life insurance policy. Request a quote below and see how much you could save on this valuable form of protection.

Whole Life Insurance

Need Help Getting Life Insurance Coverage?

If you have a preexisting medical condition and want to buy life insurance, you will need help from an expert. This person can help make sure that you get coverage so that you don’t get declined.

Warning: Applying for life insurance without a medical exam can be risky. If you get declined coverage, it could be at least two years before you are able to get any life insurance.

Impaired Risk Life Insurance
Have You Been Declined Life Insurance Coverage Before?

Frequently Asked Questions

Can I cash out my whole life insurance policy?

Yes, there are three main ways to get cash out of your life insurance policy. You can borrow against your cash account with a low-interest loan, withdraw the cash as a lump sum or in regular payments, or surrender your policy.

What happens if I outlive my whole life insurance policy?

At age 100, whole life insurance generally expires. When a policyholder outlives the coverage term, the insurance company may pay out the entire cash value to the policyholder (which in this situation equals the coverage amount) and cancel the policy. Some policies extend the period during which premiums are paid by allowing premium payments to continue until a policyholder dies. Others keep collecting premiums but maintain the contract active until it is required.

What happens to cash value in whole life policy at death?

When you die, the insurance company will assume ownership of your whole life insurance policy’s cash value, and your beneficiary will receive the death benefit.

How long do you pay premiums on whole life insurance?

Average premiums for whole life insurance are paid throughout a person’s life span. Limited-pay whole life policy premiums are paid just for a specific number of years. Single-premium whole life premiums are usually paid in one large payment.

Is whole life insurance a good investment?

Whole life insurance is not typically considered a good investment because the cash value component grows slowly and is subject to fees and charges. Whole life also generally has higher premiums than other types of life insurance. However, whole life does have some advantages. It provides a death benefit that is guaranteed to be paid, regardless of market conditions, and it can help policyholders meet their long-term financial goals.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top