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Whole life insurance: What you need to know

By Posted : December 7, 2018

If you're looking for a way to help guarantee your family's financial future, whole life insurance will pay if something happens to you, plus build cash value that you can tap into as long as the policy remains in force.

Whole life insurance is one of the four main types of permanent life insurance. It will continue to provide coverage as long as you pay the premiums or until you pass away, rather than ending after 20 or 25 years.

And the premium on a whole life policy will remain the same every year.

How whole life differs from term life insurance

While most people would rather not think of their own mortality, many people decide to buy life insurance because of a major life event. These include getting married, getting divorced, having a child or adopting a child, purchasing a home, or experiencing the death of a friend or family member. 

You may hear people debate whether you're better off purchasing a whole life insurance policy or a term life insurance policy. It can be a challenge to determine the best course for you and your family.


Unlike whole life insurance, which is designed to last a lifetime, term life covers you for a certain period of time, such as 20 or 30 years. If you die during the time that your term policy is in force, your beneficiaries will be paid the face value of the policy. But if you die after the term is up, your beneficiaries will get nothing.


And if you want to renew a term life policy after that 20 years is up, you'll pay a higher premium because of your age. You might not be able to buy a policy at all if you're in ill health. 


Does whole life require a medical exam?

A whole life insurance policy typically requires a medical exam that reviews your height, weight and medical history and include a blood and urine test for specific medical problems.

The exam may result in a higher premium, or the life insurance company may refuse to insure you at all.



Whole life builds value you can tap

Whole life insurance has both a face value and a cash value. The face value of the policy is what your beneficiaries will receive when you die. So if you have a $500,000 policy, they'll receive $500,000 at your death.






Most experts recommend term over whole life

Despite the access to cash, many experts argue that purchasing whole life insurance isn't worth the cost. That's because of the higher premiums compared to term life insurance. Instead they suggest you purchase a term policy with its lower premiums and find a safe way to invest the extra cash.

Most financial planning experts recommend term life insurance in many circumstances. You could potentially benefit from a cash value life insurance policy, but it's very likely that you'll overpay for what you get in return. You can receive almost all the retirement and investment benefits of permanent life insurance through traditional means, such as a 401(k) account, IRAs, and bonds. Even if you can afford the premiums for cash value insurance, you're probably better off buying the same amount of term life insurance and investing the difference.


The nonprofit LifeHappens has a life insurance calculator that can help you determine how much insurance you need, and which type is best for you.

Additional reporting by Susan Ladika

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How much Life Insurance do you need?
  • Extra income to my family
  • Money for funeral costs
  • An inheritance for my heirs