Whole Life Insurance Definitive Guide for 2023

By the end of this article, you will have a strong foundation for a complete understanding of whole life insurance, including: 

• How it works
• When it’s useful
• What is cash value
• Pros & cons
• Comparisons to term and other permanent insurance

Because it’s a broad topic, and there’s a lot to cover, there are links to expanded posts for several subcategories. If you have any questions along the way, give us a call at (858) 703-6178. 

Let’s get started. 

Quick Summary

Whole life insurance is the most straightforward type of permanent life insurance products. It covers you for life while slowly growing the cash value accumulation portion. Whole life costs more than term life insurance but eventually pays a benefit. Whole life insurance policies can accumulate cash value, which can be accessed tax-free in the future.

What is Whole Life Insurance?

Whole life is a way to share risk among a large group of people to prevent a few families from suffering a financial disaster if a breadwinner passes away early. Since it lasts for someone’s entire life, it provides a death benefit to heirs and offers a way to pay for any final expenses. 

Permanent life insurance (whole life is one type) has three main components:

• Lifetime coverage – whole life covers you until you pass on, surrender, or cancel the policy by not paying premiums. You don’t need to renew it, ever.
• Death benefits – choose an amount from the tens of thousands to a multimillion-dollar policy. 
• Non-taxable cash accumulation – accumulate a non-taxable cash value that grows throughout the policy’s life. 

You will need to take the life insurance medical exam for most policies. However, a few companies are offering no-exam whole life.

How Does Whole Life Work?

Whole life insurance policies offer an easy-to-understand version of permanent life insurance. You have customization options to adjust it to your family’s needs, and as long as you make your premium payments, the policy lasts for life. 

Here are the main parts to analyze on any policy you’re considering.

Lifetime Guaranteed Face Value – The face amount (also called death benefit) you choose is locked in for the life of the policy. If you borrow from the policy’s cash value accumulation portion, the company reduces your death benefit proportionally until you repay the loan.

Fixed Level Premiums – your premiums stay the same over the life of the policy. Many insurers allow premiums to be paid in full by age 65. You’ll pay a little more each month, but you can stop paying for your insurance, and it’ll remain in force once you’re paid up.

Cash Value Accumulation – guarantees a minimum interest that accumulates on a tax-free basis. You can borrow against the cash value at any time without any explanation.

Tax-Free Access To Cash Value – You can borrow against the cash value without any tax penalty. Policy loans are subject to interest. Outstanding loans and interest count against the death benefit if you pass before repaying.

Dividends – Most whole life policies offer a dividend payment. These can be taken as cash, used to pay premiums, or buy additional portions of life insurance to increase both the death benefit and cash value of your policy.

Surrender Fees – Most policies include a 15-year surrender fee. This means if you surrender the policy in the first 15 years, the company takes out a fee to cover the commission payment to your agent and the administrative costs of issuing the policy.

How Much is Whole Life Insurance?

Premiums will be higher than term insurance. But that’s because the insurance companies know that only 2% of term policies pay out. You’re paying a little more premiums early on with whole life to keep the premiums the same over time. 

To see instant whole life insurance rates from the leading companies, use the whole life insurance quote form on this page.

Here are a few sample rates for men and women, assuming non-smokers and moderately good health. (If you’re in great health, your rates may be lower.)

How Much Whole Life Insurance Do I Need?

How much life insurance you need depends on what assets you’re trying to cover. For whole life, you may be looking into estate planning, so what taxes/legal fees are involved? You might want to provide for a spouse or heirs, so what living expenses need covering? 

You can also play with the numbers on our free life insurance needs calculator.

How Tax Laws Impact Whole Life Insurance

Part of life insurance planning is accounting for taxes. Let’s take a quick look at how whole life insurance and tax work together. 

First, as long as you don’t name your estate as the policy beneficiary, whole life benefits go straight to your beneficiaries. They don’t count toward your estate value in terms of federal or state estate taxes. 

That means you can have a two-million-dollar policy, and it won’t count against you.

Life insurance contracts also skip probate, so your beneficiaries get a check right away and don’t have to deal with the court system for (potentially) years. 

Second, according to the IRS, using the cash value as a loan or retirement income stream does not count as income. So you won’t pay any taxes on that.

For more information on estate planning, read more on setting up living trusts with life insurance here.

Who Should Buy Whole Life?

Whole life insurance is not ideal for every family. However, it is the most popular life insurance product in the United States.

Whole life works best for the following situations:

• Business owners seeking buy/sell agreements
• Individuals with estate planning needs
• Individuals who have maxed out qualified retirement plans like 401(k), 403(b), and IRAs
• Individuals looking for conservative gains in cash value
• Risk-averse individuals

Types of Whole Life Insurance

We’ve been covering traditional whole life insurance so far, but there are a few other types that might be a better fit for your family. 

Single-Premium Whole Life

Single premium whole life allows you to pay the premiums in a lump-sum payment. After that, the policy becomes fully funded, and you never have to worry about it again. 

The policy guarantees the death benefit to your beneficiaries and provides living benefits like long-term care funds and cash value accumulation. 

Read more on single premium life insurance here.

Guaranteed Issue Whole Life

Guaranteed issue life insurance is its own sub-category. It’s the backup plan if someone cannot qualify for more traditional types of life insurance, usually for health-related reasons.  

These policies ask few to no health questions, have lower benefit amounts, and typically have graded benefits. 

Read more here on guaranteed issue life insurance options.

Final Expense Whole Life

Insurance companies created final expense policies to fill a need to cover end-of-life costs without huge premiums. 

The benefit amounts are typically no more than one might need to cover final rites and a few minor medical bills. There often is no cash value accumulation in these policies. 

Read more about final expense policies here.

Children’s Whole Life

Most everyone has seen a TV commercial for the Gerber Grow-Up Plan – one type of whole life insurance for children. It’s a way to ensure coverage if the child develops conditions later that make it difficult or impossible to obtain other insurance. 

They also start the cash value ball rolling earlier, giving the new adult a source of funds that could help pay for college, for example. 

Learn more about life insurance for children here.

Cash Value Accumulation in Whole Life

One way to pay for a large purchase is cash. You save up, then buy it. Another way is selling an asset, paying the taxes, and then purchasing the item. 

Life insurance cash value creates another, less-known option. 

As you pay premiums in a whole life policy, part of it goes toward a pool of money called the cash value. This feature lets the insured person use their life insurance while they live. 

You can pull the money from the cash value to use however you wish – a new car, college tuition, vacation, etc. If something happens before you pay it back, then the company just subtracts the amount from the benefit. 

How It Works

You pay premiums. A part of the premiums goes toward the cash value accumulation. This is not a separate account. It’s just a number. 

How it grows depends on your contract. Whole life policies tend to target more conservative but safe growth. Think somewhere in the 2 – 5% interest range. 

How much can I borrow?

You can borrow up to 90% of the cash value in most cases. It will depend on your contract, so asking your agent will give you more specific information. 

Remember that paying the money back is wise, particularly early in the contract, because you will have to pay it back with interest. 

How soon can I borrow?

It often takes 10 years before the cash value is worth borrowing from because of the lower interest rate. 

Term vs. Whole Life

What is the difference between whole life and term life insurance?

Term life insurance is as basic as it gets. It has two parts:

• Death benefit
• Coverage limited to a period of time

You buy insurance that covers you for a term – a number of years, usually between 5 and 30.

Once coverage expires after the term, it’s over. You can choose to renew it, but you’ll pay new premiums based on your current age and health. You’ll also need to take another medical exam to verify your health.

The renewal will cost more than your original policy because life insurance gets increasingly expensive as you age.

Many term policies offer a conversion. That lets you convert your term life policy to a whole life policy at the end of your term. You will still pay the updated rates based on your age.

Whole life policies cover you for your entire life. They have that cash value accumulation component.

Between those two parts, plus administrative fees, whole life policies can cost between three and ten times as much as an equivalent term policy.

It’s a choice between covering a period where you likely won’t use your insurance and a guaranteed payout to your beneficiaries.

Indexed Universal Life vs. Whole Life Insurance

If whole life is a death benefit main course with a side of cash value accumulation, indexed universal life insurance is a cake of cash value with death benefit frosting. 

Indexed universal life (IUL) and whole life both have permanent coverage. But IULs focus on building the cash value of the policy as quickly as possible. They have the life insurance component, so you, quite frankly, can use the cash value to fund other purchases or investments without having to sell off assets and pay taxes. Many people set up their IUL to provide retirement income.

It’s brilliant. 

Whole life has slow, reliable interest on the cash value. Indexed universal life ties it to an index that might grow 14% one year and 0% the next. 

Good news, though. IULs have a growth floor, so interest will never fall below 0%. 

Learn more about indexed universal life insurance here to see if it will fit your specific situation.

Pros and Cons of Whole Life

Life insurance is a long-term financial product. With any financial decision, there are pros and cons to every type of life insurance.

Pros

One of the reasons that whole life is so popular is that you never lose it – provided you pay your premiums. Term can turn off people because you don’t get your money back once your term expires.

There are other good reasons to consider whole life insurance.

Lifetime Coverage – Whole life is a form of permanent insurance. It’s guaranteed to pay out eventually. No matter what else happens, your heirs will get something.

More Than Just Death Benefits – Term life insurance provides only death benefits. On the other hand, whole life gives you the cash value accumulation, which you can borrow against for any reason.

Tax-Free Components – Death benefits are not subject to taxes. Plus, all the accruing interest in your cash value accumulation also grows on a tax-deferred basis. You can then take the money out of your policy tax-free.

Fixed Level Premiums – Your premiums will remain the same for life.

Minimum Guaranteed Rate of Interest – You can benefit from dividends when the market is performing well. At the same time, a market crash won’t decimate your portfolio. The insurer guarantees you won’t lose money from market performance.

Cons

No type of insurance is perfect. There are some drawbacks to whole life that it’s smart to keep in mind.

Its Costs More – Whole life can cost up to 10x as much as an equivalent term life insurance policy. However, the cash value accumulation and lifetime death benefit may be worth it.

10+ Years to Break Even – You won’t break even on the policy’s cash value accumulation for the first ten or so years. There are policy fees that slow the growth rate. Plus, because there is less risk, the growth is slower than other interest accumulating vehicles.

Lower Rate of Return – Although you earn interest, it may be less than other options that carry more risk.

The Insurer Keeps the Cash Value Accumulation When You Pass – Instead of getting passed on to your beneficiaries, any outstanding funds in the cash value accumulation portion stays with the insurer. Your beneficiaries only receive the death benefit minus any outstanding loans against the cash value.

Whole Life Is More Confusing Than Term – Whole life policies contain various fees and provisions that take some effort to understand. Make sure you have your agent clarify any parts that you find confusing.

Surrendering / Cashing Out Your Policy

Cashing out your whole life policy is simple. Talk to your agent first about your goals. There might be other options like selling your life insurance.

If you choose to surrender your policy, you can call the insurer and cancel it.

Read more about what to do with a life insurance policy you don’t need here.

Best Whole Life Companies

These are our current favorite companies for whole life insurance. We organized them by type, with traditional whole life first, then no exam policies, and finally guaranteed issue (no health questions) options. 

Note: We are in the process of building in-depth reviews of these products. We will add links under each section leading to an expanded article as we complete them. In the meantime, please give us a call at (858) 703-6178 with any questions. 

American National

Signature whole life offers an array of riders and options for the cash value account, which has guaranteed interest, and there is the possibility of additional dividends on top of it. 

The minimum face amount starts at $10,000 and extends beyond $1 million. Issue ages are 15 days to 80 years old for non-smokers and 18 – 75 for tobacco use.

National Life

TotalSecure Whole Life Insurance got updated in 2021, now called TotalSecure 2021. The amount of coverage starts at $50,000 (higher than other life policies) and extends beyond $3 million. Issue ages range from 15 days to age 85. 

The good news for anyone 18 to 50 applying for under $3 million can skip the exam. That number drops to $1 million for the 51 to 60 age group and $250,000 for 61 to 65. 

TotalSecure has a variety of riders at additional cost and dividend options to customize your policy to fit your life. 

Nationwide

Nationwide has a straightforward policy that works well for younger people that want simple, lifelong coverage. 

Issue ages run from 18 to 80 years old. Nationwide has an impressive minimum amount based on your health class. Standard starts at $10,000. Preferred starts at $100,000, and Preferred Plus minimum benefits begin at $250,000. 

They have two payment options, pay for life or until age 100, or pay for 20 years. They guarantee their cash value accumulation rates and have a respectable selection of riders to customize your policy. 

Assurity – No Exam

Assurity’s Participating Whole Life policy is another one we like because of the flexibility. They issue policies to anyone 18 to 85, with a separate category for juvenile policies. 

Benefits range from $10,000 to over a million. Their non-medical underwriting (accelerated underwriting) is more limited than other policies, with the limits being $200,000 up to 45, $150,000 up to 60, and $100,000 up to age 85. While those limits are lower than other whole life policies, that’s one of the highest ages for a no-exam policy out there. 

The policy premiums are also flexible. You can pay for life or opt for a 10-pay or 20-pay policy. 

Foresters – No Exam

The Foresters whole life insurance policy (called Advantage Plus Whole Life – No Med) also lets you skip the medical exam. Benefits range from $25,000 to $250,000, normal for no-exam policies. The part to remember is after age 60, the maximum benefits to skip the exam fall to $150,000. 

One part we like about the Advantage Plus policy is the 20-pay option. Instead of paying every month for the rest of your life, you can fully fund the policy in 20 payments. 

Foresters works well for people who aren’t in the best of health. They don’t offer rate classes above standard, which can work to your advantage. 

Sagicor – No Exam

Sagicor Life offers a no exam policy with one of the largest available ranges for application age, 16 to 65. It also allows standard tobacco and higher health classifications to skip the medical exam. 

Benefits range between $25,000 and $250,000. 

We like Sagicor because they tend to have lower rates than other companies. 

SBLI – No Exam

SBLI has a fantastic whole life policy with a ton of customization. 

You can skip the exam if you’re between 18 and 60, applying for up to $750,000 in benefits. With the exam and financial underwriting, benefits can go up to $50 million up to age 70 or $10 million up to age 80. Benefits start at $25,000.

The flexibility in dividends allows you to pay for policy premiums, get them in cash, let them accumulate interest as cash value, or even increase your death benefit. 

AIG – Guaranteed Issue

The applicant age ranges start at 50 and go all the way up to 80 years old. 

Benefits range between $10,000 and $25,000. There’s no medical exam. 

AIG includes some bonus riders with their guaranteed issue policy, except in California. The Terminal Illness Rider and Chronic Illness rider allow the policy owner to request some benefits early if the insured person gets diagnosed with a qualifying chronic or terminal illness. 

Great Western – Guaranteed Issue

Great Western separates their guaranteed issue plans (marketed under final expense life insurance) into Assurance Plus and Guaranteed Assurance. The former asks qualifying health questions and involves minor underwriting with the tradeoff of a 25% increase in death benefits. The latter has graded benefits but no health questions. 

The available benefits range between $10,000 and $40,000. 

Great Western works well for anyone age 40 and up.

Gerber – Guaranteed Issue

Gerber has a great whole life guaranteed issue policy. It has level benefits and premiums, except for graded benefits for the first three years. 

Benefits go up to $25,000. There’s no medical exam or health questions. Application age starts at 50 and goes up to 80.

Frequently Asked Questions

What is modified whole life insurance? 

Modified whole life insurance adjusts the premium schedule over the life of the contract. At first, your premiums will be much lower, and then after a few years, they’ll increase. Some policies have only one increase. Others take a stair-step approach. 

It guards against the risk of declining health as you age. If your health declines, getting a life insurance policy at great rates is more challenging. Modified whole life lets you get more life insurance for less money upfront, but you’ll make up the difference later. 

What is graded whole life?

Graded whole life insurance could either refer to graded premiums or graded benefits. Graded death benefits you will see on guaranteed issue type policies, where they have an increasing benefit scale up to the full death benefit after typically 3 years. 

Graded premiums structure the policy so the owner can pay less initially, and then the premiums increase over the years in hopes that the owner’s income increases as well. 

What is variable whole life? 

Variable whole life is another (confusing) way of saying variable universal life insurance. Like whole life insurance, variable universal life is a permanent policy, meaning it lasts your entire lifetime. It differs in the cash value accumulation, which is directly invested into securities markets.

Conclusion

Whole life offers lifetime protection and financial security for your family. It’s a good choice for risk-averse families and anyone anticipating they will need estate planning later on. Smaller whole life policies can also cover funeral expenses.

The premium amount tends to be higher than term life insurance, but lower than other types of policies offering permanent protection.

You can get whole life insurance quotes using the instant quotes tool on the right or top of the page on mobile.

How Abrams Insurance Solutions Can Help

We work with over 70 top-rated insurance companies to fit the right policy to each family at the lowest rates. 

Whole life insurance has many customization options, which vary widely between companies. If you’re unsure about how something works anywhere in your research into life insurance, give us a call at (858) 703-6178.

Our goal is to help you get the right life insurance in place at the lowest cost.