Whole life insurance explained

Whole Life Insurance Pros and Cons

Unlike other insurance types, such as car or home insurance, life insurance comes in many different types.
It’s important you understand these different types, as prices vary immensely per type. You may even be denied when applying for the wrong type of life insurance.
Learn about the pros and cons of whole life insurance, the life insurance type that insures you for the remainder of your life.

Whole Life Insurance As An Investment

Whole life insurance as an investment can have many pros and cons. Whole life insurance can be used as an investment option for financial planning because it accrues cash value over time, making it a safe investment in the long-run. Since whole life is permanent, it guarantees that the death benefit will remain in effect as long as the insured chooses to maintain the policy and pay their premiums, never having to renew it.

Renewing a policy may mean repeating the application process, and usually results in higher monthly premiums than the original policy due to an increased risk profile. One advantage of whole life insurance is that it maintains fixed rates throughout your lifetime.

Is Whole Life Insurance A Good Investment?

The most important question to ask yourself: “is whole life insurance a good investment?” Honestly, no – whole life insurance is not a good investment for a majority of Americans. Whole coverage is significantly more expensive than term life insurance – anywhere from 5 to 10 times more expensive. We highly recommend consumers apply for a 20 or 30-year term life insurance policy, take the difference in premiums, and fully fund their retirement accounts or invest in a mutual/index fund. With compounding interest, the difference in returns over a 20 year period is huge.

Is Whole Life Insurance A Good Investment

Types of Payment Plans

Most whole life insurance policies have a fixed monthly premium, but some have modified terms that offer lower premiums at the inception of the policy, increasing over time. It is also possible to pay a single lump sum for a whole life policy. Some policies have a pre-set term, at the end of which the policy is paid in full and no further payments are due; other policies may require that payments be made for the entire policyholder’s lifetime.

The payment plans are structured to meet the needs of different individuals, and obviously, life insurance rates differ based on which plan you choose. For example, paying a lump sum for a whole life policy will get you a significant discount, but most policyholders simply can’t afford that.

An Alternative Savings Plan

The premium payments for whole life insurance as an investment cover the cost of the insurance, and then divert additional premiums above and beyond the minimum to the cash value of the policy. Individuals who have difficulty maintaining a savings account can use whole life to save for future expenses.

After a set period of time, defined in the policy, the cash value can be withdrawn, or it can be used as collateral for a business or personal loan in financial emergencies. The interest paid on whole life insurance is tax deferred until the money is withdrawn. The cash value doesn’t even need to be paid back as the company will simply deduct the outstanding loan from the future death benefit payout.

Different Policies and Investment Options

The two major types of whole life policies are participatory and non-participatory. In non-participatory policies, no dividends are paid on the cash value, but it does accrue interest, often at a guaranteed rate. Participatory policies pay dividends on an annual basis, which can be added to the cash value of the policy, applied toward future premiums or paid in cash to the insured. Both types of policies offer secure permanent life insurance protection, but the cost of the policy may differ.

Guaranteed Return on Investment

Unlike other opportunities, whole life insurance as an investment is secure and will provide returns on the money that is invested. On non-participatory policies, the rate of return on investments is often guaranteed, and while rates of return may vary on participatory policies, they usually provide a guaranteed minimum return.

Another attractive feature of whole life is that the returns on investments are tax deferred until they are redeemed or the cash value is withdrawn, while other investments may be taxed as capital gains as they are earned.

No Need To Renew or Reapply For Coverage

Since whole life insurance is permanent and premiums are usually fixed, it has advantages over other types of insurance which may have to be renewed. Renewing a term life insurance policy usually means reapplying for coverage, undergoing a new medical exam and higher rates.

If an insured has developed health problems during the term of the original policy, he may not be able to renew term life coverage or find new protection due to a pre-existing condition. Even if the policy is renewed, the premiums may be considerably higher than those on the original policy.

Whole Life Insurance Quotes

With instant life insurance quotes, we make it easy to compare the coverage and rates of the best life insurance companies in the U.S. MyLifeInsuranceQuotes101.com provides you multiple online quotes on different types of policies, helping you decide which one will best meet your current and future financial needs.

Limited Payment Life Insurance

The provisions of limited whole life insurance, also known as limited payment life insurance, are similar to those of standard whole life policies, but the premiums are guaranteed to stop when the insured person reaches 65 years of age. The policy is permanent and the death benefit remains in force when the premiums cease; however, for the time you are paying premiums, the rates are higher.

Limited payment life insurance offers a fixed premium and will eventually accrue a cash reserve like other whole life policies, and the total cost for both types of policies is the same. The only difference is that, because higher payments are made earlier in the policy, the cash value grows faster and larger.

How Can The Payments Stop At Age 65?

A limited payment life policy usually charges slightly higher whole life insurance rates than standard contracts since the term of payments are shorter. The total cost is the same and affordable, but since there may be fewer premiums paid on the limited payment policy, premiums are not as cheap as term life insurance rates.

These policies are primarily designed for people who have chosen to buy life insurance later in life and want to have guaranteed coverage with no payments when they retire.

For Estate Planning

The advantage of a limited payment life policy for estate planning is that the policy leaves a death benefit for surviving family while providing a nest egg at retirement for the policyholder, in case it is needed. Since limited whole life insurance builds the cash value faster, also known as the investment or savings component, it may be an attractive option for those planning retirement and need to be forced to save.

You can also borrow up to 90% of the cash value while still retaining the death benefit, which can provide a nice cushion for retirees.

Who Should Consider Limited Payment Life Insurance?

Limited payment life insurance is a good investment for those within 10 to 15 years of retirement. Young adult have other investment options which are better-suited to long-term financial planning, including buying a term life insurance policy and investing the difference in premiums in index funds or fully-funding their retirement accounts.

Individuals in their 50s who have failed to sufficiently plan for their retirement will find the limited whole life policy an attractive way to provide a little extra for their retirement years.

Limited Whole Life As Additional Insurance

Some families may have a whole life insurance policy which has been paid in full and is part of their retirement savings. If you plan to cash in the policy to help pay for expenses during your retirement, you may want to consider limited payment whole life insurance for extra protection. Withdrawing the full whole life cash value and letting the policy lapse will leave your dependents without financial security. A limited whole life policy can provide the death benefit your children need with an emergency fund that can be borrowed against if necessary.

Before buying, consumers must evaluate the pros and cons of whole life insurance, including the higher rates versus the guaranteed rate of return on the cash value. Similarly, after you’ve decided which type of coverage best addresses your family’s financial needs, get free life insurance quotes online.

Websites like MyLifeInsuranceQuotes101.com provide consumers life insurance quotes to help them instantly find and compare rates, policies, and coverage options from the best companies. This helps shoppers buy the best and cheapest life insurance available in the market.

Single Premium Life Insurance

In the mid-20th century, many people looked at whole life insurance as a long term investment as well as a way to provide financial protection for their families. Cheap term life insurance rates made it an attractive alternative and the investment value of whole life insurance was overlooked. Not surprisingly, recent financial upsets have investors returning to the low risk, stable returns of single premium life insurance.

Unlike traditional term, universal, or whole life insurance, single premium life insurance is paid in one lump sum with no monthly, quarterly or annual premiums. The amount of the death benefit depends on your age at the time the policy is issued and the amount of your investment.

If a policyholder chooses not to withdraw dividends paid on the policy, they are reinvested in additional paid up coverage with the same terms as the original policy. Because the policy is paid up in one large, lump sum, the investment grows quickly and continues to grow until you die or withdraw the cash value.

A Low Risk, Low Maintenance, Tax Deferred Investment

Since life insurance companies are highly regulated by the government, there is very little risk associated with whole life insurance investments. The insurance company automatically invests uncollected dividends and the policy’s cash value compounds, resulting in higher returns. The best part is that a life insurance death benefit is paid out tax free, so the greater your initial investment, the greater your death benefit will grow.

Using Accrued Cash Value As Collateral For Loans

In most cases, policyholders can use up to 90% of the accrued cash value of their policy as collateral for a loan. During the term of the loan, the policy does not pay dividends on the borrowed amount and the death benefit is reduced by the outstanding loan value.

Nonetheless, the life insurance benefits of the policy remain in effect and the coverage resumes payment of dividends as soon as the loan is repaid. The advantage is that investors have the flexibility to use funds as needed, such as for a down payment on a house, college tuition, etc.

Taxes and Penalties

With single premium life insurance, similar to any whole life policy, the cash value investment grows tax-deferred. However, if withdrawn, policyholders face taxes and penalties. In addition to income tax, the IRS may assess a 10% penalty on dividends withdrawn by the investor before he or she reaches the age of 59 ½. This penalty applies to all types of retirement accounts.

The penalty does not apply to loans against the policy since no dividends are withdrawn. It also does not apply if the funds are moved to a different retirement investment account.

Nevertheless, upon your death, your beneficiaries will not pay any taxes on the death benefit payout since death benefit payments are non-taxable.

Single Premium Life Insurance

As a long term investment, single premium whole life insurance policies offer a number of pros and cons, especially advantages for people with limited investment experience. In addition to being an investment vehicle, these policies offer financial security for the policyholder’s heirs. Before buying life insurance, remember to compare companies and quotes to find the best rates and options.

Whole Life Insurance Online

Consumers who have decided that whole life insurance offers the financial protection they want for their families can use online quotes to compare policies, rates and companies to find affordable coverage. Completing your research on different companies and getting rate comparisons from each is essential when determining which policy has the lowest premiums and best fits your needs.

Whole Life Insurance

Most people ask “what is whole life insurance?” because term life is the most common and popular type of policy. Whole life insurance policies offer a fixed death benefit and premiums, as well as a cash value or equity feature. The amount of the death benefit is selected by the insured person to cover their family’s financial needs. Whole life then devotes part of premium payments to the savings feature, which grows over time and can provide dividend payments to the insured individual.

The premium payments must be continued over the insured person’s lifetime to keep the policy in effect. Once whole life insurance is paid up, the cash value remains an asset for your life time, allowing you to pull money out, use it as collateral, or leave it for your children. There are many different types of whole life insurance coverage available.

Whole Life Insurance

Limited Payment Option

Although the premium rates for limited payment whole life insurance online are higher than those of permanent whole life policies, they only have to be paid over a pre-determined time period, usually 10, 20, or 30 years. The policy then becomes permanent and no further premiums are due. The cash value can remain in the policy and the insured can use it as collateral for a no-interest loan or redeem part of the cash value to cover unexpected expenses without canceling the coverage.

Single Payment Policy

Whole life insurance may offer tax advantages and it is great for those preparing for retirement. Instead of paying premiums over time, a single payment is made at the inception of the policy. The payment is substantial, but much of it is invested in the cash value of the policy. Income earned on life insurance policies is tax deferred until it is withdrawn.

If the insured person opts for dividends, the policy can provide a small income for life while protecting family members from financial loss in the event of his or her death. In this sense, whole life insurance as an investment is a great option for families who have difficult savings a nest egg for retirement.

Adjustable Whole Life Insurance

Adjustable life insurance offers advantages to both young adults beginning an independent life and to older parents or seniors contemplating retirement. The flexible terms of adjustable whole life insurance allow the policyholder to alter the death benefit and premiums as financial obligations and income change over time. Like other whole life policies, an adjustable policy accrues a cash value which can be used in financial or estate planning.

Those who may face major income changes in the foreseeable future will appreciate the flexible terms of this permanent life insurance policy. However, life insurance companies structure their policies differently, and getting whole life insurance quotes can help consumers determine which policy offers the cheapest rates with the most benefits. By comparing quotes, consumers make certain they buy the best life insurance policy available at the cheapest prices.

Convertible Term Life Insurance

Term life insurance is the most affordable type of life insurance, but it offers no cash value. For those with a limited income, term life may provide the only life insurance option, but convertible term life insurance allows the insured person to convert the term policy into permanent coverage at a later date. To learn more about this option and if it is right for your family, review the pros and cons of each type of protection with our term vs. whole life insurance comparison.


Whole life insurance online comes with riders which can guarantee the payment of premiums if the insured person becomes disabled; guarantee the policyholder the right to increase the face value of the policy without submitting proof of insurability; or allow the insured individual to receive an accelerated death benefit to cover the expenses of a terminal illness before he or she dies. These options are offered as riders to the policy and each carries a separate additional premium, making whole life insurance rates more expensive, though flexible. The best whole life policy is really dependent on your budget and needs.

Double Indemnity For Accidental Death

There is a misconception among Americans that all life insurance policies pay double the face value of the policy in the case of accidental death. The payment of double indemnity for an accidental death benefit is offered as a rider to the policy with an additional cost. Depending on the rates, the accidental death benefit rider may be worthwhile for individuals between the ages of 18 and 55, since the leading cause of death in this age group is due to injuries caused in an accident. However, only getting free life insurance quotes online will give you an idea of the rates and coverage this type of insurance can provide.

Free Insurance Quotes

Whole life insurance online offers you and your family permanent coverage, the savings and investment potential to meet future financial goals, and finally the flexibility to choose your premium and coverage options. Comparing insurance rates and companies can help you buy the best whole life insurance at the most affordable price.

Whole Life Insurance Quotes

Whole life insurance is a permanent type of life insurance with a savings feature called cash value, also known as the equity. When consumers compare term vs. whole life, they will need to analyze the pros and cons of each, including coverage, cash value, investment options, and premiums, to determine which is better suited for their family. Life insurance quotes will show that whole rates are more expensive than term premiums.

This is because whole life offers advantages not available in term policies, like cash value and guaranteed payment of the death benefit. Below, we will discuss the elements of life insurance consumers should research comparing whole life insurance quotes.

Guaranteed Payment of the Death Benefit

Term life insurance only pays the death benefit if the insured person dies within the term period, which can be anywhere from 3 months to 30 years. If the insured person does not die within the policy term, the insurer makes no payment and keeps the premiums.

Since whole life insurance is permanent, payment of the death benefit is guaranteed whether the insured person dies at age 25 or age 90. No matter what, all or some of your premiums will be returned to you. Guaranteed payment of the death benefit is one reason that whole life insurance quotes are higher than term life quotes.

Cash Value

Part of the premiums paid into a whole life policy is diverted into a savings feature called the cash value or equity. The rate of interest paid on the cash value is guaranteed. When researching different kinds of contracts, it is fundamentally important to consider that part of the premiums are returned to the policyholder in the form of cash value, which actually makes whole life coverage cheaper than it initially looks.

The bottom line is that, despite whole life rates looking more expensive than term, part of the money paid is returned as cash value.

In fact, experts and financial advisors actually suggest that, over your lifetime, term and whole premiums are about the same. Whole life has a fixed death benefit and premiums which never increase. Term life insurance is temporary coverage and the premiums increase each time the policy has to be renewed or replaced.

The real determination when comparing premiums is whether you have better investment opportunities than the guaranteed, low-interest returns offered by whole protection. For more sophisticated investors or individuals with a strong grasp of financial markets, whole life insurance is not the best investment vehicle. Those consumers would be better served just buying pure term life and taking their extra cash and investing directly into the stock market via mutual funds or stocks.

Permanent Coverage Cannot Be Cancelled

One of the biggest advantages of whole contracts is that, once the policy is issued, the insurance company can only cancel it for non-payment of premiums. With term life, if an insured person becomes ill during the term period, they may not be able to obtain new life insurance when the contract expires.

This is another benefit of whole life, and why online quotes for whole policies are higher than other types of coverage. Because whole life is guaranteed to remain in force with no rate increases, even if a person becomes uninsurable after it is issued, consumers are more protected over the long-run.

Term vs. Whole

The advantages that term life insurance offers to consumers are cheap rates, affordability, and the flexibility to change coverage as your financial needs change. The fixed whole life death benefit may mean that the policyholder is paying for more than he or she needs at times, while at other times, the policyholder may not have enough protection to cover their financial obligations.

An example of this can be when families buy a home and take on a huge mortgage, suggesting they may need a larger death benefit. Otherwise, when the married couple retires and all the kids become independent and leave the house, the need may be much less.

Return of Premiums

Return of premiums (ROP) life policies return the premiums paid, with interest, to consumers when the policy expires. The amount is paid in a lump sum and is different from the cash value of permanent contracts because it cannot be redeemed or used as security for loans during the policy term.

Return of premium term life insurance may address some of the advantages whole life has over term, and consumers who really care about potentially wasting premiums can consider this option. When evaluating rate quotes, in order of cheapest to most expensive, we have standard term, ROP term, and permanent whole life insurance.

Calculating Insurance Rates

Whole life insurance quotes are calculated based on the amount of the death benefit, the insured person’s health risks, medical history, age, and lifestyle habits at the time the policy is issued. Your average life expectancy is used to determine the length of time you can be expected to make payments and thus the profitability of underwriting the contract and insuring you.

Factors such as smoker vs. non-smoker, fit versus overweight/obese, and family medical history of cancer or heart disease can all affect your life insurance quotes. While term rates are based on similar criteria, they are also based on the length of the contract and the odds that the death benefit will be paid.

As An Investment

Whole life insurance accrues value and can be used in financial planning to meet future goals like college tuition, a down payment for a home, or retirement. The money in the whole life equity is considered a liquid asset since the insured can redeem the cash value or use it as collateral for a loan quickly and without any penalty. Other long term investments like IRAs and CDs usually have penalties if the money is withdrawn early.

Other considerations of whole life as an investment include the fact that the cash value pays interest. Although the interest rate you earn on your cash is relatively small, whole policies act like a forced savings account for families who just can’t seem to put away money for retirement. The interest rate is guaranteed and stable, and the investment has almost no risk of loss.

In following the mantra “higher risk, higher return”, it is important to note that other investments, such as the stock market, can return higher yields, but with increased risk. Whether whole life as an investment option is right for you depends on your risk appetite and financial goals.

Tax Advantages

Returns on savings accounts or stock portfolios are subject to income tax, and in some cases capital gains tax, when they are paid. The returns are tax deferred until they are withdrawn from the policy. Loans against the cash value account are not considered income and are not subject to taxes, so a policyholder can use up to 90% of the policy cash value without any tax liability.

Universal Life Insurance

Universal life insurance is another type of permanent coverage with a cash value, but unlike whole life insurance, it has a minimum and maximum premium, and payment amounts can increase over time.

Universal life invests the equity in financial markets, such as stocks, bonds, commodities, and mutual funds that are riskier than the investments used in whole coverage. Universal can also lapse if the cash value reaches zero and the death benefit is tied to the cash value. When comparing universal and whole life insurance quotes, these risks should be taken into account.

Universal Life Insurance Rates

Universal life insurance is typically more expensive than term policies, but priced cheaper than whole coverage. When getting free quotes to compare term, whole, and universal, consumers should remember that if the cost of administering the policy increases, the rates of universal life will also increase. Universal is less secure, both as an investment and as life protection, than whole coverage.

The other issue is that whole rates are difficult to compare with universal rates, since universal policies have minimum and maximum premiums that are flexible. Again, if permanent life insurance sounds like the better type of product for your needs, choosing between whole and universal protection really depends on your family’s financial goals and needs.

Free Whole Life Insurance Quotes Online

The easiest way to find cheap life insurance rates is to get free quotes online. We work with several of the best companies to bring you free and instant insurance quotes. Consumers can use us to compare rates side by side to find the lowest term, universal, or whole life premiums. Individuals are asked to complete a short questionnaire with basic information, such as age, gender and health data, and rate quotes are available.

Comparison shopping helps consumers get the top value for their dollar by finding the best coverage and rates. When evaluating insurance quotes and different kinds of coverage, the security and investment value of policies should be balanced against the lower cost of term and universal protection.

How Does Whole Life Insurance Work?

Whole life insurance is a permanent type of coverage that never expires as long as the premiums are paid. A whole life policy offers insurance coverage as well as an investment option. Part of the fixed premiums policy holders pay are diverted to a savings feature which pays interest and increases in value over the term of the policy. Because whole policies accrue value over time, life insurance can be used as a tool in financial or estate planning.

Like all forms of life insurance, whole life has advantages and disadvantages, may not be the right choice for every individual and family, or term life insurance may simply be more affordable for your family’s budget. Comparing pros and cons and learning how whole life insurance works before purchasing is essential to finding the best policy for your needs.

Coverage Explained

All life insurance is intended to provide financial support for dependents if a wage earner dies prematurely. It also covers outstanding debts and final expenses, like business or personal loans, mortgage payments, credit card bills, medical expenses, and tuition for children. Term life insurance is temporary and inexpensive and provides the same insurance benefits as whole life insurance in the event of an insured person’s death.

However, term life insurance only pays a death benefit if the insured dies within a specified number of years, usually 10, 20, or 30 years in length. Whole life insurance is permanent, and guarantees payment of the death benefit whenever the insured person dies at any time, while helping the family accrue a nest egg for retirement through the cash value feature.

Permanent Life Insurance

Because whole life is permanent, the insured person never has to reapply for coverage and the policy cannot be cancelled by the insurer if the policy holder’s health deteriorates, or he/she develops a chronic or terminal illness.

Temporary term life policies must be renewed or replaced when they expire and the policyholder has to repeat the application process, usually resulting in an increase in premiums if the insurance company accepts the policyholder and underwrites the policy again.

A serious health condition or advanced age may make it impossible for an individual to find new term life insurance; whereas whole life insurance is a life-long policy and does not lapse or expire unless the policyholder stops paying premiums.

Policy Cash Value

The savings or equity in a whole life policy, also known as the cash value, grows over time and can be used in financial planning for retirement, a down payment on a home, or educational expenses. While the whole life policy is in good standing, up to 90% of the cash value can be used to secure no interest loans which do not have to be repaid. If the loans are not repaid, the amount is deducted from the death benefit when the insured person dies.

In most policies, a minimum interest rate is guaranteed on the amount in the cash value and some policies may also pay dividends. Whole life insurance as an investment can be a good one for families who need a forced savings account and a risk-free, stable rate of return.

Additionally, there are some tax advantages to using life insurance in financial planning since all returns on equity are tax-deferred and death benefit payments are tax exempt in the U.S.

Rates and Costs

Whole life insurance is likely the most expensive form of insurance since payment of the death benefit is guaranteed by the policy and companies will have to pay out one way or another in the future. The younger an individual is when he or she purchases a whole life policy, the lower your premiums.

In most cases, the premiums remain fixed and must be paid over the your entire life span, but there are policies available with limited payment plans or a single payment which become permanent with a large lump sum payment upfront and no further premiums.

Though whole life rates may not be as cheap as term coverage, this is because whole life protection can offer more benefits and advantages to the policyholder. To get life insurance quotes and see if a policy is the best, affordable coverage for your needs, compare life insurance quotes online.


Aside from the high cost, the biggest disadvantage of whole insurance is that it usually cannot be changed to meet changing financial needs. There are some adjustable policies which offer flexibility, allowing the insured person to alter the amount of the death benefit and premiums as his or her need for insurance increases or decreases. In most cases, whole life rates and policy coverage are fixed and permanent for a lifetime.

For some individuals who are weighing the pros and cons, the advantages of whole life outweigh the high cost and inflexibility of these policies, if you do your research and make the right decision the first time. The question is – is whole life insurance the best product for you and your family?

If you think whole life insurance is for you, consumers can find free rate quotes online to compare insurance companies. You can find the ones that offer cheap rates and good coverage, and request more information about policies to learn more.