Quick answer
Whole life insurance is a permanent life insurance policy that provides coverage for your entire life, with locked-in premiums, a guaranteed death benefit, and guaranteed cash-value accumulation. Premiums typically cost 5 to 10 times more than equivalent term life coverage, but the coverage never expires as long as premiums are paid. Whole life is best used for lifelong dependents (such as special-needs children), estate-tax planning, business buy-sell agreements, and as a conservative cash-value accumulation vehicle.
What Is Whole Life Insurance?
Whole life insurance provides coverage for the entire life of the policyholder, as opposed to Term Life Insurance which just blankets the person for a specific time period. It also has a saving component in which cash value may be accumulated.
Whole Life insurance is a commitment between a policyholder and a company or individual generally referred to as the insurer. The contract, at its most primitive roots, basically states that the policyholder will pay a monthly quota to a third qualified party, and upon the death of the insured person - not necessarily the policyholder - the insurer will pay out a designated beneficiary a sum of money.
Contracts differ and other amendments, like loss of limb, critical illness, or terminal illness may trigger the payment (the benefit).
Life policies are legitimate obligations and the articles of the contract define the boundaries of the insured events. Particular omissions are oftentimes recorded into the paper’s legal fine print to limit the responsibility of the insurer; omission relating to fraud, war, suicide, riot, and civil commotion.
Best Whole Life Insurance Companies
The carriers below are the top-rated whole life insurance companies we represent. Each is A.M. Best A or higher and has a different strength: dividend-paying mutual carriers for cash-value accumulation, simplified-issue carriers for ages 45+, and guaranteed-issue carriers for hard-to-insure applicants.
| Company | Recommendation | Rating | Best for | Quote |
|---|---|---|---|---|
 |
Recommended. Living Promise simplified-issue and Income Advantage Whole Life. Ages 18 to 85, coverage up to $40,000 simplified-issue, higher with full underwriting. Agent assisted. |
★★★★★ Mutual of Omaha Review |
Best mainstream whole life carrier. Ideal for buyers ages 45 to 85 who want simplified or final-expense whole life. | Go |
 |
Recommended. Whole Life Legacy series. Strong dividend history (multi-decade). Convertible from term. Agent assisted. |
★★★★★ A++ rated mutual |
Best dividend-paying mutual carrier for cash-value accumulation. Ideal for high-net-worth applicants and infinite-banking strategies. | Go |
 |
Recommended. Guaranteed Whole Life and Founders Plus. High dividend scale. Hybrid policy options. Agent assisted. |
★★★★★ A+ rated mutual |
Best high-dividend whole life for accumulation-focused buyers. Strong on hybrid whole life and convertible designs. | Go |
 |
Recommended. Whole Life Achiever and Provider. Consistent dividend payer. Disability waiver of premium standard. Agent assisted. |
★★★★★ A++ rated mutual |
Best whole life for buyers who want strong disability-waiver protection and conservative growth. | Go |
 |
Recommended. PlanRight Whole Life. No medical exam required. Ages 50 to 85. Coverage up to $35,000. |
★★★★★ Foresters Review |
Best no-medical-exam whole life. Ideal for seniors and final-expense needs with member benefits included. | Go |
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Recommended. Whole Life and Grow-Up Plan (children). Guaranteed Acceptance Whole Life. No health questions on GAWL. Apply online or with an agent. |
★★★★☆ Gerber Life Review |
Best for children's whole life insurance and for guaranteed-acceptance applicants who would not qualify elsewhere. | Go |
Is Whole Life Insurance a Good Fit For You?
It depends if you’re willing to pay more for the convenience and cash value a whole life insurance offers. It is a good policy to buy if you:
- want 1 life insurance policy for the rest of your life that won’t decrease in coverage or increase in price
- seek cash value opportunities in your life insurance policy
- don’t mind paying a little more while you’re younger to lock in a lower premium as you get older
How Much Does Whole Life Insurance Cost?
As of 2021, permanent life insurance costs 2 to 4 times more than term life insurance when comparing coverage dollar for dollar.
The cost can vary widely depending on your age, coverage, and health. Depending on your health, you may only qualify for guaranteed issue, which is a type of whole life insurance, but it’s most popular for individuals that can not qualify for any other type of life insurance.
Average whole life insurance rates
| Age | Coverage | Cost |
|---|---|---|
| 20 | $100,000 | $46.13 |
| $250,000 | $88.32 | |
| 30 | $100,000 | $67.52 |
| $250,000 | $123.35 | |
| 40 | $100,000 | $104.86 |
| $250,000 | $179.11 | |
| 50 | $100,000 | $161.60 |
| $250,000 | $236.23 | |
| 60 | $100,000 | $264.82 |
| $250,000 | $390.41 |
The prices above are sample prices calculated for non-smokers based in Arizona in excellent health. Get a quote to calculate your price.
Features of Whole Life Insurance
- It covers the policyholder from the moment they acquire the policy until he or she dies.
- Grants death benefits as well as a cash value accumulation that grows throughout the length of the plan.
- Prospective policyholders typically must pass a rigorous health examination.
- You can buy it without a medical exam but at a greater cost.
- It takes between 12 to 15 years to build up a modest cash amount.
- Is the best choice for estate planning.
- A share of the cash value can be withdrawn or rented out during the length of the contract.
- When comparing term to whole life insurance, whole life insurance has a higher cost for the same coverage amount.
Factors to Consider With Whole Life Insurance
Unlike other life insurance policies, Whole Life Insurance is a bit trickier. It’s not as easy to obtain as Term Life Insurance, and many factors have to be considered by the possible policyholder and the insurance company willing to issue the contract.
Some factors life insurance providers will take into consideration for a whole life insurance policy are:
- Current age.
- State of the potential policyholder’s health.
- Future and current financial needs of possible beneficiaries.
- Plans for funeral or death expenses.
- Age of beneficiaries.
- Mortgage and current debts.
- Health expenses in the event of serious illness.
- Health plans in place.
- Retirement plans.
- Estate planning and what strategies you have in place.
- Whether you want to donate the proceeds of your policy to a charity.
According to a 2020 report compounded by LIMRA and LifeHappens, over 54% of adults have whole life insurance. 29% more intend to buy life insurance at one point in their life. 40% of insured wish they could have purchased their policies sooner, at a younger age.
Benefits of Whole Life Insurance
The death benefit increases
The amount paid upon the policyholder’s death, the “death benefit,” is normally the stated value on the contract. Nonetheless, if the policy is “participating,” the death benefits will increase depending on amendments the policyholder wrote into the plan.
What exactly does that mean? If the policyholder added an extra cash value for accidental death or a loss of limb, or some other tragic circumstance, then that cash value would be summed up as the original death benefit.
Maturity
Whole Life Insurance has a “maturity” clause. The condition states that a policy “matures” at the time of death or when the policyholder reaches 100 years, whichever circumstance happens first. If the policyholder does reach the ripe age of 100, then they receive the whole face amount of their contract in cash. Policies issued since 2009 have increased this clause to 120.
Tax
Income Tax
The death benefit of whole life insurance is free of income tax. This includes internal gains in cash amounts. That same condition is equally true of other life insurance policies like group life, term life, and accidental death.
Nevertheless, when a plan is drawn out before death, the IRS treatment varies. Sometimes, any monetary gain over the total premiums paid will be taxable as ordinary income in these events. The tax-man makes a tally of how much you’ve invested, and then any amount received over that total is considered profit.
Most people have found the loophole around this tax practice to take cash values out as “loans” instead of a “surrender” of the death benefit. Any money is withdrawn from a trust or given out by an institution as a loan is free from income tax. Companies that offer these policies know of this trick and often charge a small interest less than each year’s dividend.
Estate Tax
Although whole life insurance benefits are free of income tax, the same can’t be said of the estate tax. In the United States, whole life insurance is considered part of an individual’s taxable estate.
Premiums
Compared to other policies of its kind, Whole Life Insurance premiums are a general source of headache for people wanting to take the jump. Why? The premiums are far costlier than other plans. A typical $500.000 40-year term life policy from Legal & General would cost an average 20-year-old person about $700. That same policy in Whole Life Insurance format is about 5.8 times more; $4,060.
Other Benefits Of Whole Life Insurance
- Premiums don’t vary. The policyholder pays the same rate during their roaring 20s as well as the twilight of their 90s. Other insurance plans spike their quotas with age as their assured individual matures.
- The premiums roughly equal what other policies charge if the individual survives the average life expectancy.
- You can access the cash value at any time, and through policy terms, these tax-free incomes can, in fact, be used as an investment to buffer the premiums further.
Whole life insurance may end up becoming a better value than other policies for someone with needs greater than the 10-15 years other “term policies” allow. - The biggest benefits are its assured death benefits, confirmed cash-values; set, anticipated premiums; and fatality and expense debits that do not decrease the policy’s cash value.
Uses of Whole Life Insurance
Personal Uses Of Whole Life Insurance
People are attracted to whole life because it grants coverage for an indeterminate length of time. It is the principal option for most when entering a certain age; mainly because it offers:
- Surviving spouse income.
- Supplemental retirement income.
- Funeral expenses
- Estate planning.
Business uses of Whole Life Insurance
Companies also find whole life insurance policies desirable because it protects them against possible tragedies that may hurt their bottom line. Whole Life Insurance protects them against a key employee’s death and serves as a supplemental to executive retirement plans.
Is Whole Life Insurance Worth the Cost?
Of those who own life insurance, 44% of own a permanent life insurance policy in 2019. An increase of 7% over recent years.
It depends on your overall wants and needs. We recently explored the differences between term and whole life insurance. If you want simple coverage for a predefined term, like 20 years, a whole life policy probably isn’t worth the cost. In that case, you could go with term life insurance instead for a fraction of the cost.
On the other hand, if you want life insurance coverage for the rest of your life without having to worry about an end date or having to re-apply, whole life insurance could be right for you.
There’s also the scenario of health conditions. You may also not qualify for term life insurance if you are in poor overall health or have serious health conditions. In that case, a guaranteed issue policy may be your only option.
Whole Life Insurance Builds Cash Value
Whole life insurance can also provide cash and support to the policy-holder during life. That’s right; there’s a way to tap into your insurance and pamper yourself in your old age.
Cash-value life insurance is a kind of permanent life insurance that carries an investment feature. In Whole Life Insurance, the cash value is a slice of your policy that the company invests in your favor and, in turn, earns interest as it matures. When you purchase whole life insurance, the premium you pay doesn’t just cover the amount handed over to your beneficiaries once you die (the death benefit). It is also funneled into a cash-value account. This account grows either at a fixed or variable rate, depending on the policy, company, and contracts you acquired.
And that money?
Well, it earns interest… and you can withdraw or borrow against it as it matures with you.
How to use the Cash Value from your whole life insurance policy
Loan approach
You can normally borrow part or all of that cash-value account. You can take out a portion of what you have already paid in premiums or even more (the accrued interest those funds have earned).
But why take out a loan and not withdraw the money? Why pay the company credit for this loan? It is your money, after all.
That’s because the insurance company will charge almost next to nothing in interest for that loan. But why pay interests at all? Because a loan, according to the American Institute of CPAs, isn’t considered taxable income.
Nonetheless, if you die while paying the said loan, the outstanding amount will be substrates from the net value of your death benefits.
Withdraw cash
The simplest way to get cash out of your Whole Life Insurance policy is to call your company and ask them for it. It’s a simple call, and they’ll wire the amount to your bank account.
Withdrawals are taken from your basis (that’s the amount you’ve already invested through premiums). That amount, “the basis,” is tax-free; the government considers it your money, and they’ve already taxed you somewhere along the line for it. They can’t double-dip.
For example, you’ve given the company, after some calculating (you have to figure in operational costs and other incidentals), the “basis” of $30,000. That whole amount is yours to do with as you please. Everything above that $30K is interest and profit.
Nevertheless, anything above the “basis” is considered earned income by the government lackeys in the IRS. If you tap into that portion, you’ll have to pay taxes.
Another thing to consider, taking money out of your policy reduces your death benefit.
You can cancel your policy. The company, in turn, will return a portion of what you’ve given them (they’ll first subtract unpaid premiums, loans and may charge an additional surrender fee).
Surrendering Your Policy
You can cancel your policy. The company, in turn, will return a portion of what you’ve given them (they’ll first subtract unpaid premiums, loans and may charge an additional surrender fee).
You’ll only receive part of what you’ve given them. Also, you will be charged income tax on a portion of the money they hand over.
Using Cash Value To Pay Your Whole Life Insurance
You may also be able to use your policy and the interest it has accrued to pay premiums. If you have no outstanding loans and the Whole Life Insurance has had time to mature, you can use interests (the cash value) to pay for your policy.
How much cash value does a whole life insurance policy build?
With universal life, a type of whole life insurance, the insurance company sets a minimum interest rate based on the contract for the policy (usually a low 2-3%). From there, if the insurance company’s overall portfolio gains in value, then part of the increase is added to the cash value of the company’s universal life policies, up to the maximum percentage amount listed in the policy contracts.
If the company’s portfolio does not have a significant gain, or if it takes a loss, the insurance company is still obligated to pay the minimum interest stated in the policy contracts.
When Permanent Life Insurance Is a Solid Investment
Fees and commissions aside, permanent life insurance makes sense in a number of circumstances. It is advantageous for people from an insurance perspective whenever a person fears that they may not be able to renew term life insurance policies due to illnesses, disabilities or disorders that may present later in life. Permanent life insurance is just that - permanent. There is something to be said for buying the knowledge that you will always have coverage in place and that is one of the key benefits of a cash value policy.
The insurance product also makes sense when the purchaser wants the option to infuse predictability into their long term care expenses. When coupled with long term care riders, permanent life insurance can create a heavily tax-advantaged pool of money to provide for nursing home care. People expecting to rely on Medicaid subsidies to provide also benefit from whole life insurance plans when they are held in an irrevocable trust. Because assets in these trusts will not disqualify you from Medicaid eligibility, they can be used to transfer wealth to heirs, provide a steady stream of discretionary income, and can pay for final expenses.
Investors with a high net worth would also do well to consider using cash value insurance as a mechanism to avoid the estate tax. Couples with a net worth exceeding $10.98 million at the time of their passing are subject to the federal estate tax. It’s quite a hefty tax and for those who qualify, it will take 40% of every dollar over $10.98 million.
Don’t think that an estate tax is something that you would ever need to worry about? Think again! All of these states have independent estate taxes and some of them kick in at estate values as low as $1 million and that often includes your primary residence. Because state estate taxes are taken on top of federal taxes, it doesn’t strain the imagination to consider the case of someone who is close to a federal or state estate tax limit benefiting from the purchase of whole life insurance, annuities, and the use of irrevocable trusts to strategically exempt some of their assets from their taxable estate.
Consider a woman who lived in Oregon at the time of her passing. If she had an estate worth $1.5 million when she died, $500,000 of her estate would be exposed to a 10% state tax. That costs her heirs a whopping $50,000. Had she used a combination of irrevocable trusts and cash value insurance to shelter $500,001 of her estate’s value, her net worth would have remained the same, she could have accessed her investments through sheltered withdraws from her life insurance policies, and her estate would have been immune to the estate tax.
Knowing how much this saved in comparison to the fees and expenses associated with cash value insurance is challenging because the fee structure of every plan is different. What isn’t hard to say is that sheltering any money from a 40% federal tax and a state tax that exceeds 10% is a big move that demands serious consideration.
