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What Is Whole Life Insurance?

Dana George

Our Insurance Expert

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

A whole life insurance policy can help protect your loved ones from financial peril in the event of your death. Here, we'll cover what whole life insurance is and the best life insurance companies for whole life coverage. If you decide to move ahead with whole life, we'll also direct you toward the best whole life insurance policy for you and your loved ones.

Whole life insurance definition

There are two primary types of life insurance: Term and whole. To better understand the definition of whole life insurance, it helps to compare whole and term life insurance features. As the name implies, term life insurance lasts for a specific number of years. Once the term is up, the policy expires.

On the other hand, whole life is a permanent life insurance policy. As long as the policyholder pays the premiums on time, the policy remains active. Unlike term insurance, whole life policies include a cash value component. Once your policy has time to accumulate funds, you can withdraw from the money that has accumulated.

How does whole life insurance work?

In six steps, this is how whole life insurance works:

  1. You apply for coverage. The application may be made in person with an insurance agent or online, depending on the company and your preferred method.
  2. The insurer will take a deep dive into your history to determine whether you're insurable, and if so, how much your premiums will cost. Here's a list of some of what the insurance company will check:
  • Age
  • Gender
  • Height and weight
  • Credit history
  • Criminal history
  • Nicotine use, including nicotine patches and gum
  • Your health history
  • Health history of your immediate family
  • Substance abuse
  • Driving record
  • Hobbies and activities that may be considered dangerous

3. When approved, you will be offered a rate quote. If you accept the quote, you'll sign insurance documents.
4. You make a premium payment and pay premiums at regular intervals to maintain coverage.
5. When the policy has accumulated enough cash value, you can begin to make withdrawals.
6. If you decide you don't need life insurance anymore (for example, if you've already saved and invested enough to provide for your family if you die), you can surrender the policy and receive a lump sum.

Whole life insurance features

As we'll cover here, you're likely to find that whole life insurance quotes are more expensive than term insurance quotes. The reason why has to do with the extra benefits associated with whole life coverage. For example, while borrowing against life insurance is not possible with a typical term policy, whole life allows policyholders to take out a policy loan and use the money as an emergency fund. It's important to note, though, that it typically takes around 10 years to build up enough cash to access the policy's cash value.

Here are a few of the other features associated with whole life insurance:

Cash value accumulates with whole life insurance

In addition to a death benefit, whole life insurance allows policyholders to build up cash value in their policy. The cash grows tax-deferred, much like a 401(k) plan. A policyholder is not expected to pay taxes on it during their high-income years. Instead, they pay taxes when they begin withdrawing funds.

Guaranteed rate of return

In the meantime, whole life insurance companies offer a guaranteed rate of return on the cash value of the policy. According to Consumer Reports, the average annual rate of return on a whole life policy is 1.5%. While that is low, it does beat the interest rate on many banking products, including interest-bearing savings accounts and money market accounts (MMAs).

Guaranteed death benefit

A whole life policy is an investment vehicle that pays death benefits. As long as the policy is still in effect when the policyholder dies, the death benefit chosen by that policyholder at the time of purchase will be paid to their estate.

Whole life insurance pros and cons

As with any financial product, whole life insurance has pros and cons. The trick is to figure out if the pros outweigh the cons in your situation.


  • Premiums are fixed for life.
  • The policy builds tax-deferred cash value at a guaranteed rate.
  • If the policyholder decides they no longer need life insurance, they can surrender the policy and receive any cash value it holds.
  • If the policyholder cannot make the payments, they can ask to receive the cash value and use those funds to catch up on the premium.


  • It can cost six to 10 times more than a term policy with the same death benefit.
  • If the policyholder allows coverage to lapse, the losses can be expensive.

Is whole life insurance worth it?

The answer is "maybe." Depending on your situation, whole life can make sense. Let's say you have no investment strategy in place, and making your monthly whole life premium is the only way you are likely to create an emergency fund or receive a guaranteed return. In that case, it may make sense to look into a whole life policy of your own.

Whole life coverage may be less complex than other types of permanent insurance -- like universal life insurance -- but it is still more complicated than term life insurance. If you're happy to do your own investing and savings, and your sole goal is to purchase life insurance to cover your loved ones, term life is less expensive and simpler to navigate.

Agents who sell whole life policies say that it's an "investment vehicle." But when you compare the average guaranteed rate of a whole life policy against the average annual return in the stock market, you'll quickly realize how much money you may be leaving on the table.

Let's say you're looking for coverage and can't decide between term life insurance and whole life. You're a 35-year-old male in good health. You're quoted a rate of $600 per year for a term life policy and $3,600 per year for a whole life policy with the same death benefit.

You have two choices. You can pay $300 a month for the whole life policy and earn an average return of 1.5% on the accumulated cash. Or, you can pay $50 a month for a term policy and invest the extra $250 in the stock market. As you know, the stock market rises and falls. Still, between 1971 and 2020, the annual average return on stock investments was 10.9%.

Even if we were to use a more conservative estimate of 7%, it's easy to see how investing in the stock market will ultimately earn more than settling for a low 1.5% rate of return.

Whole life insurance rates

To give you an idea of how history and lifestyle can impact rates, each of these quotes starts with a 35-year-old who has requested $300,000 in death benefit coverage.

Sex Overall Health Smoking Status Driving Record Average Annual Rate Quote
Female Excellent Non-Smoker Clean $3,190
Male Moderate Asthma -- Relatively Well Controlled Non-Smoker Clean $3,822
Female Average Smoker Clean $3,515
Male Good Non-Smoker Reckless Driving Conviction 5 Years Earlier $3,822

Whole life insurance companies

Here are five insurance companies with excellent track records. While the benefits associated with each company can overlap, pinning down the right insurer begins with finding one that offers features that are important to you.

Northwestern Mutual: Cash value is guaranteed to grow over time and can be used for anything.

MassMutual: Some policies offer the opportunity to earn dividends.

Globe Life: Benefits can never be cancelled or reduced.

State Farm: Premiums paid to 100.

Transamerica: As long as certain criteria are met, there's no need for a medical exam.

How whole life insurance compares to other types of life insurance

Smart shopping always boils down to comparing your options. Here's a quick peek at how whole life compares with other life insurance products.

Whole life vs. term insurance

Term life policies expire at the end of their term, while a whole life policy can last the policyholder's entire life as long as they keep up with the premiums. Term life policies accumulate no cash value, and if the policyholder does not die while the policy is in effect, they have nothing to show for the years of premiums they have paid (except peace of mind).

Whole life policies accumulate cash value that can be used to catch up on missed premium payments or as an emergency fund. This cash draws interest -- typically around 1.5% annually.

Whole life is much more expensive than term life insurance. For example, a 35-year-old female in excellent health can land a $300,000 term life policy for around $345 per year. A whole life policy for $300,000 would cost the same woman an annual premium of approximately $3,190.

Other types of permanent insurance

Whole life is not the only type of permanent life insurance. For example, universal (or adjustable) life insurance offers more flexibility than standard whole life insurance. Say your career is going well, and you're getting regular raises. After a few years, you realize that you need more insurance coverage to make up for the lost income if you die. As long as you pass a medical examination, you may increase the death benefit with a universal life insurance policy.

Another type of permanent coverage is a variable life insurance policy. Variable life combines the death protection of traditional life insurance with an investment strategy. This policy allows the holder to use the funds that accumulate in the savings account to invest in stocks, bonds, and money market mutual funds. Here's the sticky bit: If your investments perform poorly, it could decrease the policy's cash value and death benefit.

A hybrid of universal life and variable life policies is called variable-universal life. It allows the policyholder to adjust their premiums and death benefit as their circumstances change and to make investments with the funds that accumulate in the policy.

Choosing the right insurance policy is not a one-size-fits-all proposition. What works for one person may be all wrong for another. The best advice if you're shopping for insurance is to do your homework. Rather than depend only on what you hear from an agent or salesperson, read up on everything about the insurance product you're most interested in to find the right one for you and your situation.

Related: What is adjustable life insurance?


  • A whole life policy may be a good place to save money if you're not a disciplined saver. However, the stock market has historically provided better returns than whole life policies when it comes to investments.

  • The younger you purchase any life insurance policy, the cheaper the annual premium.

  • Once the policy matures, it means that the cash value is equal to the death benefit. At that time, the insurance company may pay you the cash value.

  • Typically, at least 10 years.

  • Either when the policy matures or when you've decided that you no longer need a death benefit.