Whole Life

What Is Whole Life Insurance?

Whole life insurance is a permanent life insurance policy. It’s guaranteed to remain in force for the life of the insured as long as the premiums are paid. When you first apply for coverage, you are agreeing to a contract in which the insurance company promises to pay your beneficiary a certain amount of money – called a death benefit – when you pass. You’ll choose your coverage amount, and your premium will be calculated based on your age, gender, and health. As long as you pay your premiums, your whole life insurance policy will stay in effect and your premiums will remain the same regardless of health or age changes.

For example, let’s say you buy a whole life insurance policy at age 40. When you purchase the policy, the premiums will be locked in for the life of the policy as long as you pay them. They will be higher than the premiums of a term life insurance policy because your entire lifetime is built into the calculation.

Unlike term insurance, whole life policies don’t expire. The policy will stay in effect until you pass or until it is cancelled.

Over time, the premiums you pay into the policy start to generate cash value, which can be used under certain conditions. Cash value can be withdrawn in the form of a loan or it can be used to cover your insurance premiums. All loans must be repaid before you pass or they will be deducted from the policy’s death benefit.

How Does the Cash Value Benefit Work?

Whole life policies are one of the few life insurance plans that build cash value. What is whole life insurance cash value? It is generated when premiums are paid – the more premiums that have been paid, the more cash value there is. The main benefit of cash value is that it can be withdrawn in the form of a policy loan.

For example, if you have been paying premiums for many years and have an unexpected medical bill or financial obligation, you can call your insurance company and see how much you can withdraw from your policy. As long as the loan and any interest is repaid, your policy’s full coverage amount will be paid out to your beneficiary. If the loan isn’t repaid, the death benefit will be reduced by the outstanding balance of the loan.

What Is Whole Life Insurance as an Investment?

While whole life insurance policies act as an investment vehicle of sorts because of the cash value they accrue, you shouldn’t view any type of life insurance as an investment. True investments are heavily regulated and have safeguards in place to protect investors. Whole life insurance is also heavily regulated, its regulations have little to do with the financial sector.

Rather, you should view whole life insurance as a safeguard that protects your loved ones from experiencing a financial burden when you pass. The death benefit can help ensure they don’t have to dip into their savings or investments to handle your final arrangements.

What Does Whole Life Cover?

Whole life covers the entire life of the insured. When you have this policy type, it will provide a cash payout to your beneficiaries when you pass.

Costs & Premiums

Whole life insurance is more expensive than term life insurance because the insurer is insuring you for your entire life, not just for a term. And as you age, insuring you becomes more expensive.

Here is a chart that shows sample costs of a whole life insurance policy.