Whole Life Insurance

Whole life insurance is designed to protect your loved ones even after you’re gone. It is life insurance coverage that never expires and will pay a tax free death benefit to your loved ones. All of this makes it a great choice for some people.


Defining Whole Life

Whole life insurance is also commonly referred to as Cash Value life insurance. It is a permanent form of life insurance which includes a cash value feature that grows with interest. This interest rate is set by your insurer and continues to build your entire life.This is just one of the many guarantees accompanied by a whole life policy. 

Additional guarantees offered through a whole life policy include:

  • Fixed premiums
  • Guaranteed Death Benefit
  • Guaranteed cash value minimum rate of return 

Having a fixed premium means that your assigned premium rate at the time of your application /approval, will be permanently saved. Meaning you do no have to worry about rising premiums.

A guaranteed death benefit ensures that your family receives compensation following your death. Additionally, a guaranteed cash value rate of return ensures that your cash value is consistently growing.


How does cash value work?

The cash value component of a whole life policy is very enticing too many. Understanding how your cash value works is essential to those considering a whole life policy. 

Essentially, a portion of all premiums payments made on your policy, will be dispensed into a cash value account. This account will grow over time and can be accessed by you at any time. The money in this account is tax free similar to that of a 401k or other retirement account.

You should note that any withdrawals or loans made on this account, may be subject to taxation. 

Your guaranteed return rate will determine how much your cash value will grow however, it is impossible to know for sure. Some commonly seen guaranteed return rates include 1%, 2%, and above.

This cash value component is a major differentiator between a whole life and term life policy. 


The difference between term & whole life 

The most obvious distinguishing factor between a whole life insurance policy and a term life policy is duration. With term life insurance lasting for a temporary period of time and whole life insurance is set to never expire. This means that you will never outlive your whole life policy the way you might with a term life policy. 


Some other distinguishing factors include:

  • Price– Whole life policies are far more costly than term life policies
  • Cash value– Cash value is only offered with a whole life policy
  • Larger death benefit– A larger death benefit payout is usually associated with a whole life policy
  • Guaranteed return rate– Offered through a whole life policy

 Determining the costs


Whole life insurance is not an affordable option for everyone. In fact, it can be up to 12 times more expensive than other non permanent forms of life insurance. However, your individual whole life premium will be determined by a number of factors. These factors are as follows: 

  • Health 
  • Age 
  • Gender
  • Driving record
  • Payment period
  • Coverage amount


A whole life policy includes many other variable factors determining the price you pay. Some of these price drivers include:

Dividend payments

 Dividend payment or crediting involves receiving a credit amount towards your annual premium amount. This means that you can subtract your dividend or credit amount from your annual costs. 

Premium Duration

The duration of your premium payments will also drive your cost. Those who wish to pay their premiums over a shorter time frame as opposed to life long, can expect steeper costs. Some of these shorter time frames include 10, 20, or 30 year time frames. 

Guaranteed return

If you elect for a higher return rate on your premiums you can also expect your overall premium to rise. 


Who needs whole life insurance?

Not all will need life insurance throughout their entire lives. Additionally, this offering is costlier than most other forms of life insurance. For many, other lower costs alternatives such as term life insurance will suffice. However, there are some circumstances where a whole life policy may make the most sense. 

These circumstances are as follows:

  • As a trust for children
  • Those with large estates
  • Those with a high net-worth 

A whole life policy can be used as a trust for your children following your death. It can also help pay estate taxes on your estate. This is recommended for those with estates that do not pass the current estate tax exemption. 


Is whole Life insurance right for me?

When determining if whole life insurance makes sense for you, ask yourself the following questions:

  • Will I need life insurance for over 30 years?
  • Do I want my beneficiaries to receive a payout following my death?
  • Will I use the cash value feature?
  • Do I prefer a fixed payment?

If you answered no to most of these questions, you may want to consider other less costly forms of life insurance options. A great affordable alternative to whole life insurance would be term life insurance. If you answered yes to two or more of these questions, then whole life insurance, may be a good fit for you. 


What if I no longer want whole life insurance?

When it comes to term life cancelling your policy is simple. You simply stop paying your premium payments and your benefits will seize.  

You may be wondering if the same can be done with a whole life policy. The short answer is not quite. If you were to stop making payments on your whole life policy your cash value would then begin to withdraw, in order to cover your premium. This would continue to occur until your cash value is depleted. 

There are however, other ways to surrender your whole life policy. Some of these methods include:

Converting to term life 

If you determine you no longer need life insurance for the rest of your life, you may consider converting your policy into a term life policy. The insurance company would simply take what you have paid on your whole life policy thus far, and apply it to term life policy with the same death benefit. 


Ask for your cash surrender

Another option for surrendering your whole life policy is to ask for your cash surrender value. This would initiate insurers to return your cash value minus surrender fees, back to you. Keep in mind that doing so would require you to pay income taxes on any value gained. Additionally, your policy will be completely termed and therefore, you would have no further life coverage. 


Exchange for an annuity

Another option is to consider a 1035 exchange. This involves swapping out your policy for another policy or annuity. This exchange can also help you avoid taxation on the surrender value of your policy. 


Lower your death benefit amount

Reducing your life insurance is also an option. To do so, your insurer would calculate your premium payments thus far and allocate a new death benefit for that amount. This option can help you avoid taxation while still allowing for some form of coverage.

What happens when I die?

One of the most appealing factors of a whole life policy is the support it can offer your family upon your death. Unlike term life, a whole life policy never expires meaning you are guaranteed to be within coverage at the time of your death. 

Most traditional whole life policies will pay out a death benefit to your beneficiaries proceeding your death. In these occasions, your accumulated cash value is often returned to the insurer. Any outstanding loans related to your cash value will also be subtracted from your family’s death benefit at this time. 

Some insurers will give you the option to add on an additional rider to protect against this. Adding on this rider would ensure your family receives both a death benefit as well as your accumulated cash value. You can expect this rider too equate to a higher annual premium.  

Cash value

While you are still alive, you will be able to access a cash value component of your whole life policy. This can be done so in the form of withdrawal or a loan. All loans will be tax free and paid back with interest. Additionally, all withdrawals lower than your current premiums paid amount, will also be tax free. Any withdrawals which exceed this amount will be taxed as investment gains. 

Both loans and withdrawals will be deducted from the death benefit amount allocated to your beneficiaries. 


Life insurance beneficiaries

A large component of obtaining a whole life insurance policy is to protect your beneficiaries. Your beneficiaries will be selected by you to receive a large payout in the form of a death benefit amount. This payout will come from your insurers and occur following your death

A whole life policy will allow for more than one beneficiary and varying allocation percentages. This means that you can choose who receives a payout as well as the percentage of their payout. 

Because the beneficiary payout is such a large component of a whole life policy, you will want to ensure your beneficiary information is continually updated. A good rule of thumb is to review your beneficiary preferences at least once a year. 


Whole life insurers

There are countless insurance companies on the market which offer a whole life product. Each insurer may offer varying terms, rates, and qualifications for their individual underwriting process. You may want to consider each company’s individual insurance rating as assigned by insurance raters. Working with a licensed agent can often be helpful when it comes navigating these companies.


Some common top rated insurers offering a whole life product include:

  • MassMutual Life Insurance Co.
  • Mutual of Omaha 
  • New York Life
  • Northwestern Mutual
  • OneAmerica Financial
  • Penn Mutual
  • State Farm Life
  • Transamerica
  • AIG



Consider Your Options

While whole life insurance is not for everyone, it may be a feasible
option for you. The extended benefits offered through a whole life
policy may be best suited for your particular situation. Reviewing all
of your life insurance options before making a final decision on your
coverage can help you make an informed decision.


You may also consider working with a licensed insurance professional
to help you learn the ins and outs of life insurance. Shopping the
market can help you find the type of coverage that makes sense for you
and your family. Do not be afraid to ask questions and play around with
your coverage options.