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Whole Life Insurance


Whole life insurance is a type of permanent life insurance that offers coverage throughout the lifetime of the insured. For policyholders who are diligent about paying premiums, whole life will provide coverage until the day the policyholder passes, without the need for policy conversion, extension, or renewal.

Among the various types of permanent life insurance policies, whole life insurance is the most common. The American Council of Life Insurers (ACLI) reported out of all policies sold to individuals in the US in 2017(1), 60 percent were whole life policies.

Why is whole life insurance more popular? Clear knowledge and understanding of this type of insurance coverage and its benefits and limitations should provide a fair perspective for consumers researching what type of life insurance to buy.

What is Whole Life Insurance

To understand whole life insurance, one should first understand the key elements of this type of coverage.

Permanent Coverage

In the case of a term life insurance policy, the coverage term is fixed (e.g. 30 years). This means the policyholder may outlive the policy duration. Once the policy expires, the insurance company is no longer responsible for paying out any death benefits to the beneficiary. This concern is avoided, though, in whole life insurance, which remains active until the last day of the insured’s life, provided there was no default on premium payments. This increases the chances of beneficiaries receiving the final payout.

Fixed Premiums

Most permanent life insurance policy premiums are fixed amounts. This means the rate the policy begins with will be the same rate throughout the policy—it is not subject to change. The advantages of fixed premiums are:

Cash Value

In most whole life policies, a portion of the premium paid accrues into a cash value account.

This additional saving feature of the whole life insurance distinguishes it from term life insurance.

Who Should Buy Whole Life Insurance?

Whole life insurance suits almost any individual who wants to have lifelong insurance coverage, in other words, virtually everyone. However, under certain circumstances, individuals may not need full life protection. Sometimes people take life insurance for short-term coverage for various reasons. Some instances explaining this notion follow.

The main determining factor in selecting life insurance coverage is asking, “How much life insurance do I actually require?”

Whole life policy premiums are roughly 10 times that of term life insurance policies for corresponding periods. Whole life insurance could prove to be a less cost-effective option for some people (particularly for older applicants).

For a whole life insurance policy, the insured needs to have a steady source of income to pay the premiums comfortably. If for some reason, future income or expenses are uncertain, term life or a universal insurance policy might prove a better option.

Advantages of Whole Life Insurance

The whole life insurance policy is not for a fixed duration like the term life plan. It provides coverage for the whole life of the insured. But whole life policies are not necessarily limited to the death benefit alone.

Before selecting a life insurance plan, those shopping around for coverage should consider all the options available. A brief compilation of the potential financial gains a whole life insurance policy can provide is detailed below.

1. Guaranteed Protection of Value and Growth

The accumulated cash value of a whole life policy is unaffected by stock market upheavals. In most cases, the accumulation is through periodic premium accrual independent of stock market movements. Furthermore, this policy’s cash value grows at a fixed rate, independent of stock market climbs and reversals.

2. Additional income

Whole life coverage is exchangeable for an annuity that will pay out a steady income for life. This exchange will not draw any taxation. Policyholders considering this should consult a registered financial consultant or a tax expert for advice before taking action.

A professional licensed life insurance broker is better suited to assess what your unique needs are.

3. Potential Source of Funds

During the lifetime of the insured, if he or she has individual needs requiring additional funds to meet important expenses, whole life insurance’s accumulated cash value can be very useful. Policyholders can take a loan from this amount and repay later, but anyone borrowing against their benefit amount should remember:

4. Annual dividends

Some insurance companies will share a part of their annual profits with their policyholders, in the form of annual dividends paid for the life of the whole life insurance policy. The dividend amounts are variable and depend upon the profits earned. Policyholders can use dividends to purchase additional coverage. Further benefits of this include the following:

5. Surrendering for Cash Value

Many unforeseen adverse financial situations can befall a policyholder over the course of a lifetime. These may include:

In these situations, if the policyholder is in urgent need of money, he or she may surrender the whole life policy in return for the cash value accumulated until then. The insurer may deduct some charges before paying the accrued amount to the policyholder. Once surrendered, this policy ceases to exist.

6. Retirement savings vehicle

Whole life insurance can be used as a savings vehicle. It serves three purposes:

Limitations of Whole Life Insurance

The main objective of any life insurance policy is to protect the insured’s loved ones from financial distress after they are no longer there. Both term life and whole life accomplish this. Some people may prefer a combination of both. Before deciding which option to choose, make sure to understand:

Term Life Insurance vs. Whole Life Insurance

Key Features of Term Life Insurance

Key Features of Whole Life Insurance

Which is better: Term Life or Whole Life?

When deciding whether to purchase term life or whole life coverage, there are many variables to consider. When shopping for coverage, consumers should consider multiple aspects of their lives and discuss their options with an insurance agent. The agent will walk them through the process. Before making a choice, consumers should consider the following factors:

For example, for a 32-year old sole-wage-earner with a family and children in kindergarten, a term life insurance policy that provides the necessary coverage amount may suit him best.

In the event of your premature demise, what kind of financial safety net would your family need? To determine the answer to this question, consider the following expenses:

Many middle-aged policyholders who have children set the duration of their policy to match with the time their children might complete college. In such cases, term life insurance may be the right choice.

Alternatively, a whole life insurance policy with the same coverage amount is another option. With this insurance:

Still, yet another option for the example of the 32-year-old above would be a conversion of term life into whole life coverage. This could allow for additional retirement savings.

Converting from Term Life to Whole Life

Most insurers of life insurance permit converting a term life insurance policy into any permanent life insurance, including whole life. But under what circumstances is this the right course of action? Some situations in which this conversion may be useful include:

Converting term life to whole life can allow policyholders to:

Your needs and objectives will determine how you structure and manage your policy. You may seek advice from an experienced insurance agent in order to make a preeminent choice that best addresses your situation.

Buying both Term Life and Whole Life

Individuals can simultaneously own both kinds of life insurance. In most cases, persons who consider this option would already own a whole life policy. Any short-term need for additional coverage could trigger the demand for supplementary term life insurance. The duration of the term life coverage will match the duration of the additional risk.

In some instances, candidates for whole life insurance already own a term insurance policy and are interested in whole life insurance as an investment option for:

Cash Value and Death Benefit in Whole Life Insurance

When a claim is made, the beneficiary receives the death benefit while the insurance company gets the cash value.

When you tap into the cash value, take care to ensure you do not deplete the death benefit by too much.

Important Riders to Consider

When shopping for a whole life insurance policy, knowledgeable consumers inquire about adding riders to their policies. Below is a rundown of popular riders often offered by insurance companies on these types of policies. Some companies offer some of these riders free of charge, while some riders come at a price. Understanding the insurer’s specific terms and conditions surrounding a rider is key in taking advantage of the benefits it offers.

Waiver of Premium Rider

If the policyholder is unable to work due to permanent disability or illness, the insurer may waive the premiums. This is applicable for instances such as:

The level of disability that triggers this rider varies across insurance companies. Having this rider, however, can ensure the policy does not lapse, and the beneficiary receives the death benefit in the event the insured passes away.

Critical Illness and Terminal Illness Riders

Another name for a rider that covers critical or terminal illness is “accelerated death benefit rider,” which gives the insured the option to receive a portion of the policy’s death benefit, upon being diagnosed with a terminal illness. In most cases, this rider may be free or very economical because its terms of applicability can be very stringent.

A critical care rider is similar. The policyholder can utilize an early partial payout from the death benefit if he or she receives a diagnosis of an illness that requires prolonged intensive treatment.

For instance, if the insured suffers a stroke and requires constant nursing care, a premature partial payout of benefits is available to pay medical bills.

If the insurer offers this rider free of charge, it is in the best interest of the insured to take advantage of this benefit. If the insurer does not offer it for free, the policyholder can decide if it is in the best interest of the policy and, ultimately, the beneficiary, to opt-in after going through the terms and conditions of the rider in detail. Understanding the conditions under which this rider will apply will make the decision undoubtedly easier.

Tax Rules for Whole Life Insurance

Conscientious policyholders should exercise extreme caution with these loans, however. Borrowing combined with poor management can create an income tax liability if the policy lapses or is surrendered. The taxable gain is calculated without considering the loan amount.

Top Companies Selling Whole Life Insurance

Guardian Life Insurance


Mutual of Omaha

New York Life

Northwestern Mutual

Ohio National Life Insurance Company


Whole Life Insurance – Application Process

When applying for whole life insurance, applicants must provide basic details and personal information on the application such as the following:

Mindful applicants should resist any temptation to lie about height, weight, or health condition. Disclosing accurate facts is vital to getting approved. If at any point during the policy application or later, the insurer discovers the applicant misrepresented information, especially details pertaining to health, the company could:

Most insurance companies will mandate a medical examination by an authorized third party. A life insurance agent can make the necessary arrangements for applicants to meet a paramedic or nurse at a convenient place, whether home, office, or a medical center specified by the insurance company.

Key Takeaway

Everyone’s situation is different. The choice of insurance company, the type of whole life insurance policy, and the policy amount will vary for different people. What may be the best for one person may not necessarily be the best for another.

With the guidance of a proven and reliable life insurance agent and by carefully considering personal and family situations, the overall financial goals, and available options, consumers can make a smart and confident choice when buying whole life insurance.


  1. 2018 Life Insurance Fact Book, Chapt 7 Page 68 - Available from: https://www.acli.com/posting/rp18-007