What Is Whole Life Insurance?

Whole Life Insurance is a type of “permanent” life insurance policy will cover you for the entirety of your life. When setting up your policy, you and your representative will determine how much your “death benefit” or policy amount will be.

Whole Life Insurance

Reasons to consider whole life insurance

Level premium payments

Premiums will be higher for whole life insurance, but over time, this type of policy earns cash value. Whole life insurance allows for permanent protection, assuming all premium payments are made on time.

Cash value grows tax-deferred

This type of policy offers tax-favored growth of your funds and access to your money by taking out loans for future needs.

permanent protection

Whole life insurance typically offers a few different payment options: one lump sum, paying over 10-20 years, or you can even make payments until your 100. Shorter pay periods means higher premiums.

Five key things you should know about whole life insurance

  • Different types of whole life insurance exist
  • A medical exam will be required before you can be issued a policy
  • Whole life insurance is an investment vehicle
  • Always be sure to check your insurance companies financial stability
  • Whole life insurance will always have higher premiums than term life insurance

How Does Whole Life Insurance Work?

Once you pay your premium, it will be divided by the insurance company. Some will be invested into your account where it will take some “cash value.” The rest of the premium will cover the insurance part of your policy.

When you have a Whole Life Insurance Policy, you are guaranteed a return on your investment. The ways your insurance company invests your money typically have meager returns, which allows for easier guarantees to the policyholder.

1. You pay your premium. 

Your cash value account does have an interest rate, although it grows very slowly. After you have acquired some interest, you can borrow against it, or you can leave it as it is.

2. You get to the “maturity age.” 

The definition of “maturity age” differs from insurance company to insurance company. However, most have decided on 120 years old. If you live to be 120, you can get a check for your cash value.

3. You die before maturity, and your cash value disappears.

If you die before you reach 120 years old, and you’ve never borrowed against your cash value, you never see that money. When you die, your beneficiaries get the death benefit, and the insurance company keeps your cash account.


How Can I Use My Whole Life Insurance Cash Value?

There are two options, and neither is like receiving a paycheck. You can either borrow against your cash value account or cancel the policy and receive whatever your cash value is worth.

Taking out a loan against the cash value. 

When you take a loan against your cash value, you will have to pay an interest rate. If you do not pay back the money you borrowed, your insurance company will take that amount from your policy benefit.

You can surrender your policy. 

Cash surrender or cancellation is another way to access the money in your cash account. Basically, you tell the insurance company that you want to cash out your policy, and they’ll send you a percentage of your policy’s cash value. Your particular policy will have a defined percentage. 

These cash value accounts do not really work to the policyholders’ advantage unless you live to be 120 years old!


Universal and variable life insurance are also classified as “permanent” life insurance that builds cash value. 

How does universal life build cash value?

Although premiums for whole life insurance stay the same over the course of your life, if you do not pay these premiums on time, your policy can “lapse.”

When you purchase a universal life insurance policy, you have more control over how much you pay and when. You can pick your time frame in which you would like to pay off your policy. The cost of insurance will determine the minimum amount due. 

If you pay over the cost of your insurance, it’ll be added to your cash value, which will grow at a minimum interest rate. It should be noted that this can grow faster depending on market conditions.

Often, policyholders will pay the maximum premium so that they can build a larger cash value. Later, that cash value can be used to cover the cost of the premium. However, it’s important to remember that the cost of insurance will increase as you get older, so you’ll want to make sure you’re going to have enough cash value to pay your premiums.

What about variable life? 

Another type of universal life insurance is variable life insurance. This type provides more control, but it also holds more risk. 

With a variable life insurance policy, the policyholder chooses how the cash value is invested. These funds can go towards stocks and bonds- which are higher risk but do offer a higher rate of return than whole life policies. 

If you are willing to devote the time and attention to the cash value of your variable life insurance policy, it could be worth it, but it does hold a higher risk.

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Life insurance FAQs

Life insurance can be confusing. Find answers to the most frequently asked questions.

Policy owner 
The policy owner is the person who owns the life insurance policy. In many cases, the policy owner is also the person who is insured by the policy. However, the policy owner may also be a relative of the insured, a trust, partnership, or a corporation.

A beneficiary is the person(s) selected by the policy owner to receive the life insurance payments upon the death of the insured.

Premiums are the payments made to the insurance company to purchase and keep a policy active.

Death benefit
A death benefit is the amount paid to the beneficiary at the time of the death of the insured.

Face amount
The face amount of the policy is the amount of the death benefit as stated in the policy. This does not include additional amounts that the policy may provide.

Insured/insured life
Insurability refers to how likely an applicant is to be offered coverage based on current health, medical background, family history and other factors.

When determining this the main factor to consider is the period of time you’ll need coverage, especially if you have children. If your children are young, twenty or thirty years of term life coverage would help your children get through college or secure their future. If your children are older and able to support themselves, you might consider a shorter term period that’s more appropriate for your needs.

Generally, the benefits received by beneficiaries after death are collected tax free. If you have a permanent life insurance policy, the funds accumulated over time would not be subject to income tax as long as the policy is still in effect. Finally, while withdrawals and loans reduce the value and death benefit, most are not taxable.

When choosing a life insurance company be sure they have exceptional customer service, competitive pricing, great claims payment history, as well as being financially sound. To learn more about company ratings online visit Standard and Poor’s, Moody’s, Fitch and Weiss.