Whole Life Insurance

The biggest difference between whole life insurance vs. term life insurance is that whole life insurance coverage is permanent. Buying a whole life insurance plan is an investment. Your monthly premium payments add value to the whole life insurance policy over time. Read this guide to learn how to compare whole life insurance quotes online.

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Eric Stauffer is a former insurance agent and banker turned consumer advocate. His priority is to help educate individuals and families about the different types of insurance they need, and assist them in finding the best place to get it.

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Written by Eric Stauffer
Founder & Former Insurance Agent Eric Stauffer

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Oct 28, 2021

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Although thinking about your death is never pleasant, it’s a good idea to put some thought into how your loved ones will be cared for after you pass away.  This type of planning will give you peace of mind that your family will be financially secure and won’t need to suffer from hardship as a result of your death.

Some insurance policies offer additional investments that can make them very valuable tools for planning your future.  These policies, known as whole and universal life insurance, have cash value and are able to grow over time.  For many people, the additional value of these policies makes them superior to the more affordable term life insurance option.  If you’re considering purchasing a whole life insurance policy, it’s a good idea to do your research and confirm that this is the right investment for your needs.

How Does Whole Life Insurance Work?

To understand your whole life policy, it helps to have a basic understanding of how other types of life insurance work.  By far, the more common type of life insurance is term life.  In term life, you buy the policy for a predetermined amount of time.  If the insured does not pass away during the policy term, a new policy must be purchased.  Any money paid into the policy is lost, and there is no cash value.

Whole life insurance works differently.  Whole life policies are permanent.  Once you purchase the policy, it will continue to protect you for as long as you pay your premiums.  This is valuable for many people as it can be challenging to buy a new insurance policy later in life.  If you have any preexisting health conditions, finding affordable insurance is difficult.  If you can lock into a whole life policy when you’re young, however, you’ll be able to keep it forever regardless of your health.

The other way that whole life insurance policies differ from term life is that whole life policies have cash value.  Every time you pay your premiums, a portion of that payment is invested.  The dividends of that investment strengthen your policy.  This allows the policy to grow in value over time.  It also gives you the ability to use the policy as collateral for a loan, and money can be withdrawn from the policy as well.  For this reason, whole life policies are commonly marketed for children as an investment vehicle for college. (Most notably by Gerber Life.)

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What’s the Difference Between Whole and Universal Life?

Although the terms are often used interchangeably, whole and universal life insurance policies are not exactly the same thing.  Both are permanent life products with a cash value.  Whole life policies, however, are not quite as flexible as universal life insurance.  This makes them a less attractive option for many customers who are looking for permanent life coverage.

In a universal life insurance policy, you can alter your premium payment and change the death benefit amount your beneficiaries receive.  In a whole life policy, you are locked into a set premium and predetermined death benefit.  Upon your death, your beneficiaries would receive the face value of the policy you purchased in addition to any cash value left within the policy.  This money would pass directly to the beneficiaries without going through probate, which can be helpful for some people with complicated estates.

How Much Does Whole Life Insurance Cost?

Like all other life insurance policies, whole life premiums vary depending on your health and other personal factors such as age and medical history.  Before obtaining a policy, you will need to pass a medical exam and medical history check, and this information will affect your premiums.

Once the premiums are calculated, however, your rates will be set indefinitely.  This means that you can apply for whole life insurance at a time when your health is at its peak and continue paying those same rates for the rest of your life.  This is one of the most attractive features of all permanent health insurance policies, and it’s a good reason to get into shape before buying life insurance.

That said, you can expect to pay more for a whole life policy than term policy of the same face value.  Because whole life policies are permanent, the insurance company must collect higher premiums to offset the expense of a claim.  Additionally, the investment portion of the whole life policy means that you pay more into your premiums initially, even if that cash value is liquidated later.

Is Whole Life For Everyone?

Despite the benefits, whole life insurance is not the right choice for everyone.  Some people may find its cost prohibitive or feel that the coverage is “overkill” where a more affordable term policy would suffice.  Others believe that the investment value of a whole life insurance policy is not as high as other types of investments, which may yield considerably higher returns.

There are a few people who can definitely benefit from whole life policies:

  • Individuals who are healthy, but at risk of developing medical conditions later in life
  • People who wish to lock in a set rate and keep it forever, even if it’s fairly high at first
  • Individuals who want dividends on an investment without any tax penalties
  • People who want the option of taking a loan out against a policy or liquidating for cash

Before purchasing a whole life insurance policy, it’s a good idea to consider your individual financial situation and the needs of your family. Getting quotes from multiple insurance companies is the best way to ensure that you receive the best policy without breaking your budget.  

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