How whole life works
Whole life is the simplest kind of permanent life insurance. You pay a level premium, and in return the insurer guarantees a death benefit whenever you die, not only during a set term.
Part of each premium goes into the policy's cash value, which grows at a rate guaranteed by the insurer. You can borrow against the cash value or withdraw from it, although doing so reduces the death benefit if it is not repaid.
What is guaranteed
Premium
Set when the policy starts. It does not rise with age or changes in your health.
Death benefit
Paid to your beneficiaries whenever you die, as long as the policy is in force.
Cash value
Grows on a schedule the insurer guarantees in the policy.
Dividends
Some policies may pay dividends. These depend on the insurer's results and are not guaranteed.
Whole life compared with term
| Term life | Whole life | |
|---|---|---|
| How long it lasts | A set number of years | Your whole life |
| Premium | Lower; level for the term | Higher; level for life |
| Cash value | None | Yes, guaranteed growth |
| Best for | Needs that end, like a mortgage or raising children | Needs that do not end, like final expenses or a legacy |
Who it is a good fit for
- People who want coverage that can never run out.
- People planning for final expenses or wanting to leave a set amount to family or a cause.
- People who value fixed, predictable costs and guarantees.
If your main goal is the most coverage for the lowest cost while your family depends on your income, term life is usually the better match. Many people combine the two.
Good to know
Cash value projections are illustrations. Only values labeled "guaranteed" in the insurer's illustration are guaranteed. Life insurance is not an investment or a retirement plan.
Frequently asked questions
What happens to the cash value when I die?
With most whole life policies, your beneficiaries receive the death benefit. The cash value is part of how the insurer funds that benefit and is not paid in addition to it.
Can I cancel a whole life policy?
Yes. If you surrender the policy you receive its cash surrender value, which may be less than the premiums you have paid, especially in the early years.
Is a medical exam required?
It depends on the insurer, your age and the amount. Smaller whole life policies, such as final expense, often need only a few health questions.
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