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The Ultimate Guide to Whole Life Insurance: Benefits, Types, and More

whole life insurance

Whole life insurance is a type of permanent life insurance with lifetime coverage as long as the premiums are paid. Besides the death benefit feature, whole life insurance policies also come with cash value that accumulates over time. This can be borrowed against or withdrawn in cases of crisis. Premiums for whole life insurance are usually set higher than that of term life insurance, but they remain the same throughout the policy’s duration with straightforward costs. 

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What is Whole Life Insurance and Why is it Important?

Whole life insurance is a type of life insurance policy that provides lifetime coverage as long as the premiums are regularly paid. Unlike term life insurance, which only covers the policyholder for a set period of time, whole life insurance offers lifelong protection and also includes a savings component that can earn cash value over time.

A Brief History of Whole Life Insurance

The inception of whole life insurance goes back to the mid-19th century. Its earliest concept had been practiced centuries ago, but it wasn’t until the 1800s that the modern life insurance industry began to take shape. 

The first whole life insurance policy was issued in 1848, and it quickly gained popularity as a way for people to protect their loved ones financially after their death.

In the early days, whole-life insurance policies were relatively simple and straightforward, with fixed premiums and death benefits. Over time, however, insurers began to offer more complex policies that included features such as cash value accumulation and flexible premium payments.

Whole Life Insurance vs. Other Types of Insurance Policies

Other types of insurance policies, such as disability life insurance, include other clauses that Whole Life Insurance doesn’t offer. An example of this is disability insurance, which provides income protection if the policyholder becomes unable to work due to a disability, and long-term care insurance, which covers the cost of long-term care services. 

Understanding the Different Types of Insurance Policies

There are varying types of insurance policies, including life insurance, health insurance, property insurance, liability insurance, and many more. Each type of insurance policy serves a unique purpose and provides coverage for specific risks and circumstances. 

For example, life insurance is designed to offer financial security for your loved ones in the event of your death, while property insurance is meant to protect your home, car, or other possessions from damage or loss.

How Whole Life Insurance Differs from Other Types of Insurance Policies 

These are some features in whole life insurance policies that make it different in these ways:

  1. Duration of coverage – Lifetime coverage for the insurer.
  2. Cash value accumulation – Accumulates cash value over time, which can be borrowed against or used to pay premiums. 
  3. Premiums – Whole life insurance policies generally have higher premiums and are fixed in the duration of the policy. 
  4. Investment component -This can provide additional returns to the policyholder, but it also comes with additional risks.
  5. Death benefit – This is paid to the policyholder’s beneficiaries upon their death. 

The Different Types of Whole Life Insurance Policies

There are different types of whole life insurance policies available, each designed to meet different needs and goals:

Traditional whole life insurance offers a guaranteed death benefit, fixed premiums, and a cash value component that grows over time. 

Universal life insurance offers more flexibility in terms of premiums and death benefits, allowing policyholders to adjust them as their financial needs change.

Variable life insurance allows policyholders to invest the cash value component in various investment options, such as stocks and bonds, potentially earning higher returns but also carrying higher risks.

Indexed universal life insurance provides a death benefit, a cash value component, and the opportunity to earn interest based on the performance of a stock market index.

Participating Whole Life Insurance Policy

Participating whole life insurance policies are often used as a long-term investment and retirement planning tool, as the accumulated savings can be withdrawn or borrowed against in the future.

The policyholder is entitled to receive a share of the profits earned by the insurance company from these investments, which are called “dividends.” These dividends can be used to reduce the premium payments, to purchase additional coverage, or to receive cash payments.

Non-Participating Whole Life Insurance Policy

Unlike participating whole life insurance, there is no investment or savings component, and the policyholder is not entitled to receive any dividends or share in the profits of the insurance company.

Single Premium Whole Life Insurance Policy

Single premium whole life insurance is often used as a way to provide a tax-free inheritance to beneficiaries or to transfer wealth to the next generation. It can also be used as a way to fund long-term care expenses or to provide a source of emergency funds in retirement.

Additionally, it has a cash value component, which accumulates interest over time. The cash value can be borrowed against, used to purchase additional coverage, and the policyholder may even be able to receive a partial surrender of the cash value in certain circumstances.

Limited Pay Whole Life Insurance Policy

This type of policy is often chosen by individuals who want to ensure that their loved ones are financially secure in the event of their death, without having to worry about ongoing premium payments in their later years.

This means that after the premium payment period is complete, the policyholder will no longer have to pay any further premiums, but will continue to have life insurance coverage. 

Benefits of Whole Life Insurance for Individuals

Whole life insurance is known to offer several benefits for individuals that other premiums cannot. Some of those benefits are stated below. 

Protecting Your Family with Whole Life Insurance

With whole life insurance, you can have peace of mind knowing that your family will be protected from financial hardship in the event of your unexpected passing. 

How Whole Life Insurance Can Supplement Retirement Income

Whole life insurance can supplement retirement income in several ways. First, it provides a guaranteed death benefit to beneficiaries, which can help replace lost income for surviving family members. Some whole life insurance policies accumulate cash value over time, which can be accessed by the policyholder through withdrawals or loans. 

Building Wealth with Whole Life Insurance

This is a strategy where individuals use whole life insurance policies as a means of accumulating wealth over time. These policies offer a combination of life insurance coverage and an investment component that grows over time, enabling policyholders to build a cash value that can be accessed in the future. This strategy is often used as a way to supplement retirement income or leave a financial legacy for loved ones.

Estate Planning with Whole Life Insurance

This involves using a life insurance policy to help manage the distribution of assets after death. The policy provides a death benefit that can be used to pay estate taxes or other expenses, while also serving as a way for transferring wealth to beneficiaries. This strategy can be especially useful for individuals with large estates or complex financial situations, as it can help to minimize taxes and ensure that assets are distributed according to their wishes.

Benefits of Whole Life Insurance for Businesses

By offering permanent coverage and cash value accumulation, whole life insurance can be a valuable tool for business owners looking to protect their companies and provide for their families in the event of unforeseen circumstances.

Business Continuation with Whole Life Insurance

Whole life insurance provides permanent coverage and builds cash value over time. Business owners can use this cash value to fund a buy-sell agreement, which outlines how the business will be transferred to a new owner or owners in the event of the owner’s death or disability. The buy-sell agreement can help ensure a smooth transition of ownership and provide financial support to the owner’s family. 

Key Person Insurance with Whole Life Insurance

The business purchases a life insurance policy on the key employee, with the business as the beneficiary. If the key employee dies or becomes disabled, the business receives the insurance proceeds, which can be used to cover expenses such as hiring and training a replacement, paying off debts, or covering lost revenue. The policy also builds cash value over time, which can be used for additional business needs.

Deferred Compensation with Whole Life Insurance

This is often used by high-income earners and executives who want to defer their compensation to a time when they will be in a lower tax bracket, while also securing a form of life insurance coverage.

The policy accumulates cash value over time, which can be used to fund the employee’s retirement or other long-term financial goals. 

Executive Bonus with Whole Life Insurance

An Executive Bonus Plan is a compensation arrangement in which an employer provides a bonus to an employee that is used to purchase a whole life insurance policy. The employer pays the premiums on the policy as a form of deferred compensation. The policy’s cash value grows over time, and the employee can access it as a source of retirement income or use it to fund other financial goals. 

Whole Life Insurance Premiums

Whole life insurance premiums are the regular payments made by the policyholder to maintain coverage throughout their lifetime. The premiums are usually fixed and will not increase over time, making it easier for policyholders to budget for the cost of insurance.

How Whole Life Insurance Premiums are Determined

Whole life insurance premiums are determined based on several factors such as the age and health of the policyholder, the desired death benefit amount, the duration of coverage, and the insurer’s underwriting guidelines. The premium for whole life insurance is usually higher due to its permanent coverage and the added investment component, which is the cash value. 

Factors that Affect Whole Life Insurance Premiums

Several factors can affect the premiums of whole life insurance, including the policyholder’s age, health status, lifestyle, gender, and occupation. The desired death benefit amount and the duration of coverage also play a significant role in determining the premium. The insurer’s underwriting guidelines, including the company’s claims history and financial strength, can also impact the premium. 

Whole Life Insurance Premium Payment Options

The premiums for a whole life insurance policy can be paid in a variety of ways, including:

  • Single premium payment – The entire premium for the policy is paid in a single lump sum payment.
  • Annual premium payment – The premium is paid once a year, usually on the anniversary date of the policy.
  • Semi-annual premium payment – Paid twice a year, usually every six months.
  • Quarterly premium payment – Paid four times a year, usually every three months.
  • Monthly premium payment – The premium is paid every month, usually through automatic electronic funds transfer (EFT).

Cash Value in Whole Life Insurance Policies

Cash Value Defined

The cash value component acts as a living benefit for policyholders from which they may get funds. The life insurance net cash value is what the policyholder or their beneficiary has left over once the insurance company takes its fees or any expenses incurred during the policy’s ownership. 

As premiums are paid, a portion of the payment is used to pay for the insurance coverage, while the remainder is invested by the insurance company. The accumulated savings, or cash value, grows over time and can be accessed by the policyholder in various ways, such as through a policy loan or withdrawal. 

Understanding Cash Value in Whole Life Insurance Policies

As policyholders make premium payments, a portion of those payments goes towards the policy’s cash value, which earns interest and grows tax-deferred. 

They can borrow against the cash value, use it to pay premiums, or surrender the policy for its cash value. However, it’s important to note that borrowing against the cash value can reduce the death benefit and surrendering the policy may result in taxes and fees. 

How to Access Cash Value in Whole Life Insurance Policies

Whole life insurance policies provide both life insurance coverage and a savings component known as cash value. Policyholders can access their cash value in a variety of ways, including:

Withdrawals – Policyholders can withdraw money from their cash value account, subject to certain limits and taxes.

Loans – Policyholders can borrow against the cash value of their policy at a lower interest rate than traditional loans.

Surrender – Policyholders can surrender their policy in exchange for the cash value, but this may result in the loss of life insurance coverage.

Dividends and Cash Value in Whole Life Insurance Policies

Dividends are a portion of the insurance company’s profits that may be paid out to policyholders who have participating whole life insurance policies. These dividends are not guaranteed and are paid out annually. Policyholders may use dividends to purchase additional insurance coverage, reduce premiums, or receive them in cash.

Cash value, on the other hand, is a savings feature that grows over time as policyholders make premium payments and can be accessed through withdrawals, loans, or surrender of the policy.

Riders in Whole Life Insurance Policies

Riders are clauses added to a premium, which can be done while applying for the premium, or after. Usually these clauses require an additional cost to the premium.

In whole-life insurance policies, riders can cover a wide range of options, such as accelerated death benefits, long-term care coverage, and waiver of premium. Adding riders can increase the premium cost, but they can also provide greater flexibility and protection for the policyholder and their beneficiaries.

Disability Income Rider in Whole Life Insurance Policies

This rider is designed to protect the policyholder’s income stream and provide financial security during a period of inability to provide for themselves or their families, helping to cover living expenses and maintain a certain standard of living. It is added for an additional premium, and the monthly income benefit is based on a percentage of the policy’s face value.

Long-Term Care Rider in Whole Life Insurance Policies

This is an additional feature that can be added to a whole life insurance policy, providing coverage for long-term care expenses like nursing homes or in-home care. It allows policyholders to access their death benefit to pay for these expenses, helping to protect their savings and assets.

Accidental Death Benefit Rider in Whole Life Insurance Policies

This rider provides additional coverage to the policyholder’s beneficiaries if the insured person dies as a result of an accident.

The payout from the rider is typically a multiple of the policy’s death benefit, and the exact amount will vary depending on the terms of the rider.

Waiver of Premium Rider in Whole Life Insurance Policies

This rider provides protection to the policyholder in the event of a disability or serious illness that prevents them from paying their insurance premiums.

If the policyholder has a waiver of premium rider and becomes disabled or seriously ill, the insurance company will waive the premiums on the policy. This means that the policy will remain in force, and the policyholder’s beneficiaries will still receive the death benefit if the policyholder dies.

Tax Benefits of Whole Life Insurance

The tax benefits of whole life insurance to policyholders include tax-deferred growth of cash value, tax-free withdrawals of basis, and tax-free death benefits. Policyholders can also take advantage of policy loans and withdrawals without incurring tax liabilities, provided they follow certain guidelines. 

Tax-Deferred Growth with Whole Life Insurance

It refers to the ability to accumulate cash value in a whole life insurance policy without having to pay taxes on the growth until the funds are withdrawn. This is because the cash value of a whole life insurance policy grows tax-deferred, meaning that the policyholder is not required to pay taxes on the earnings until they withdraw the funds.

Tax-Free Death Benefit with Whole Life Insurance

One of the key benefits of whole life insurance is that the death benefit is typically tax-free for the policyholder’s beneficiaries. This means that the beneficiaries receive the full amount of the death benefit without having to pay income tax on it.  

Choosing the Right Whole Life Insurance Policy

Understanding the policy’s terms and conditions, such as the death benefit payout options and any riders or endorsements available, can help ensure that the policy meets the individual’s financial goals and needs.

Determining Coverage Needs for Whole Life Insurance

Factors to consider include the individual’s income, debts, future expenses, and the number of dependents they have. It’s also important to consider any potential estate taxes and how the policy’s death benefit can help cover these costs. 

Working with an Advisor or Agent to Find the Right Whole Life Insurance Policy

An advisor can help individuals navigate the underwriting process and provide ongoing support to ensure that the policy continues to meet their changing needs over time.

Comparing Policies and Providers for Whole Life Insurance

 Factors to consider when comparing life insurance companies and policies include the cost of premiums, the amount of coverage provided, the investment component of the policy, and the financial strength and reputation of the insurance provider. 

Applying for Whole Life Insurance

When applying for whole-life insurance, you’ll typically need to provide personal information such as your age, health history, and lifestyle habits. The insurance company will then use this information to assess the level of risk you pose as a policyholder and determine the premium you’ll need to pay.

The Underwriting Process for Whole Life Insurance

The underwriting process involves a thorough evaluation of your health and other risk factors to determine your eligibility for coverage and the premium you’ll need to pay. This process includes a review of your medical history, a physical exam, and possibly even lab work or other tests. The insurance company will also consider factors like your age, gender, and lifestyle habits when making their decision. Based on this assessment, they will either approve your application and provide you with a policy, or deny your application if they deem you to be too high of a risk.

The Importance of Accurate Information when Applying for Whole Life Insurance 

Accurate information helps the insurer assess your risk accurately, ensuring that your policy’s premium reflects your actual risk level. Failure to provide accurate information could result in policy cancellation, denied claims, and even legal consequences.

Exam and Medical Requirements for Whole Life Insurance

Most insurers require applicants to undergo a medical exam as part of the underwriting process. The medical exam typically involves a physical exam, blood and urine tests, and possibly other diagnostic tests, depending on the applicant’s age and medical history.

The results are used to assess the applicant’s health and determine their risk level. Based on the risk level, the insurer determines the premiums for the policy.

In some cases, depending on the applicant’s age and health, the insurer may require additional medical information or exams, such as an electrocardiogram (EKG) or a stress test.

Managing Your Whole Life Insurance Policy

Make it a habit to keep up with your premium payments to avoid policy cancellation. Many insurers offer automatic payment options to simplify this process.

It’s also a good idea to review your policy to ensure that it still meets your needs. This applies for updating your contact information in your policy when necessary as well. As your life changes, you may need to adjust your coverage levels or beneficiaries.

Depending on the type of change you want to make, you may need to speak with your insurance agent or company directly. Common changes include adjusting your coverage amount, adding or removing beneficiaries, and updating your contact information. 

Policy Lapse and Surrender in Your Whole Life Insurance Policy 

Policy lapse occurs when you fail to pay your premiums on time, resulting in the termination of your whole life insurance policy. Surrender, on the other hand, involves voluntarily terminating your policy and receiving the cash value that has accumulated. While surrender can provide you with a cash payout, it may also have tax implications and could reduce your death benefit. 


What is the difference between Whole Life Insurance and Term Life Insurance?

Whole life insurance provides coverage for the entirety of a person’s life and includes a cash value component, while term life insurance provides coverage for a specified term and does not include a cash value component.

Is Whole Life Insurance a Good Investment?

Whole life insurance is not considered a good investment for most people due to its high costs and low returns compared to other investment options.

How do I know if I need Whole Life Insurance?

You may need whole life insurance if you have a lifelong dependent or financial obligation, such as caring for a special needs child, or if you want to leave an inheritance. 

How much Whole Life Insurance coverage do I need?

Whole life insurance coverage needs depend on individual circumstances such as income, debts, and dependents.

Can I borrow against my Whole Life Insurance Policy?

Yes, you can borrow against your whole life insurance policy’s cash value. The loan amount and interest rate will depend on the policy’s terms and the amount of cash value available.  

How do I choose the right Whole Life Insurance Provider?

When choosing a whole life insurance provider, consider factors such as the provider’s financial stability, customer service reputation, policy features and benefits, and cost.  

Can I change my Whole Life Insurance Policy?

You may be able to make changes such as adjusting your coverage amount, changing your beneficiaries, or altering your premium payments.  

What happens if I stop paying premiums on my Whole Life Insurance Policy?

If you stop paying premiums on your whole life insurance policy, it could result in a lapse of coverage or cancellation of the policy. The exact consequences will depend on the specific terms of your policy, but in general, you may lose your death benefit and any accumulated cash value. You may also be subject to fees or penalties for missed payments.  


Whole life insurance can provide financial security to your loved ones by offering a guaranteed death benefit and potentially accumulating cash value over time. It can also serve as an estate planning tool and offer tax advantages.

The good thing about the policies in whole life insurance can be used as a source of retirement income, as the cash value can be withdrawn or used to purchase an annuity.

It also includes complex features, such as dividend payments and nonforfeiture options, that require careful consideration and understanding.

Whole life insurance is generally recommended for individuals who want permanent coverage and are willing to pay higher premiums for the additional benefits such as a guaranteed death benefit, cash value accumulation, and potential tax advantages. It may be particularly suitable for individuals with dependents who will require financial support after their passing, or those who want to leave an inheritance or fund their final expenses.

This type of life insurance is ideal for people who are thinking of long-term investment that can help them and their famies in case of death. The premiums are fixed and tend to be higher than that of term life insurance, but the benefits in whole life insurance policies are grander, and the funds can be used in many ways possible. 

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Amber Benka
Amber first started in insurance five years ago. She has had various roles in my career, ranging from customer service, policy servicing, writing policies, creating endorsements, running the customer worker’s comp billing, and even writing about insurance. In addition to being a full-time agent, she also writes insurance content as a hobby. Amber's license number is 826316. Agent ID: Linkedin: Facebook:

Amber first started in insurance five years ago. She has had various roles in my career, ranging from customer service, policy servicing, writing policies, creating endorsements, running the customer worker’s comp billing, and even writing about insurance. In addition to being a full-time agent, she also writes insurance content as a hobby. Amber's license number is 826316. Agent ID: Linkedin: Facebook:

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