Key takeaways

  • Whole life insurance is a type of permanent life insurance policy that guarantees a death benefit for the policyholder's entire life as long as premiums are paid.
  • The cost of whole life insurance is generally more expensive than term life insurance, but it may be a good option for those looking for lifetime coverage and a guaranteed payout for their beneficiaries.
  • Whole life insurance policies have a cash value component that accumulates over time and can be borrowed against, but the interest rate may not be as high as other investment options.
  • Whole life insurance policies can be sold or surrendered for cash, but the value amount may vary depending on how long the policy has been in force.

There are a few different types of life insurance policies to choose from when you’re shopping for coverage. That includes whole life insurance, which is a type of permanent life insurance policy that remains in place for your entire life and guarantees a death benefit as long as premiums are paid. However, while whole life insurance may offer a number of unique perks, it may not be the best option for everyone. Before you make a decision on your life insurance coverage, it may benefit you to learn more about the pros and cons of whole life insurance, as well as how it works, in order to make the best choice possible for your unique circumstances.

What is whole life insurance?

As the name suggests, whole life insurance offers coverage for the life of the policyholder, as long as premiums are paid, with a death benefit paid out to a beneficiary or beneficiaries when the policyholder dies. Whole life features a cash value, which is held in an account that accumulates over time. Whole life insurance interest rates are fixed, with a minimum guaranteed rate. Whole life insurance compound interest means that your money will grow steadily, but your rate of return may not be as significant as it would be with some other types of investment.

Types of whole life insurance

There are several forms that whole life insurance can take, with each one catering to different financial needs and preferences. Choosing the right type of policy depends on your risk tolerance, financial goals and your health considerations. Here are four common kinds of whole life insurance:

  • Traditional whole life insurance: This type of policy provides a guaranteed death benefit along with a cash value component that accumulates over time. Premiums are usually level and remain constant throughout the policyholder’s life. The cash value provides a stable and predictable investment.
  • Participating whole life insurance: This insurance type allows policyholders to share in the insurer’s financial success. When the insurance company generates profits, policyholders may receive dividends. These dividends can be used to increase the cash value, purchase additional coverage or be paid out in cash. This adds a layer of flexibility and potential for increased returns.
  • Simplified whole life insurance: You may want to explore simplified whole life insurance if you are worried that you may not qualify for traditional policies due to health issues. Although there is usually no medical exam, you are likely to have to answer health-related questions on the application. It typically requires less stringent underwriting, making it more accessible. While premiums may be higher compared to traditional policies, the simplicity of the application process is a key feature.
  • Guaranteed whole life insurance: These policies provide a guaranteed death benefit and cash value accumulation with fixed premiums. Guaranteed policies do not require you to undergo a medical exam to qualify or answer questions about your health and can be a good choice for older individuals who don’t qualify for traditional policies. Guaranteed whole life insurance usually has a low death benefit cap, often around $25,000.

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How does cash value work?

Cash value is a key component of permanent life insurance. This term refers to the portion of your premium payment that is set aside in an interest-bearing account, where it gradually accumulates value. For some individuals, the cash value serves as a form of savings within the policy, and it can play a role in a strategic financial plan.

It is possible to take out a loan against the cash value of your policy. This loan will accrue interest, which you will need to pay back along with the loan amount itself. If it is not repaid, it reduces the death benefit. Depending on your policy, the cash value may also be used to pay premiums.

Borrowing against the cash value can be a fairly simple process, and you may have a favorable interest rate, which makes it an appealing option for a policyholder looking for income with an easy approval process. In addition, loans are not reported to credit bureaus, so your credit score will not be impacted.

Best whole life insurance

Whole life policies are common, and most life insurance companies offer them. Bankrate annually analyzes insurers to determine which ones offer the best whole life insurance. To determine the top companies, we look at J.D. Power’s U.S. Individual Life Insurance Study, which assesses customer satisfaction. We review each company’s financial strength rating with AM Best and the total number of complaints registered with the National Association of Insurance Commissioners (NAIC). Finally, we look at each company’s coverage options and potential riders while also reviewing how easy they make it to do your business digitally. In 2024, MassMutual received the Bankrate Award for Best Whole Life Insurer.

Companies writing solid whole life policies, based on Bankrate’s research, include:

  • State Farm: State Farm received a 2024 Bankrate Award for Best Term Life Insurance and Best Universal Life Insurance, but it also offers whole life policies. State Farm is in the top spot in J.D. Power’s most recent customer satisfaction ranking, and it offers several whole life options, including limited pay, single premium and guaranteed issue final expense insurance.
  • Nationwide: Nationwide offers three whole life options: 20-Pay WL, which features guaranteed premiums and cash value and an easy application process; simplified whole life, which is available to clients who also have Nationwide car or home insurance; and WL 100, for those seeking permanent coverage with guaranteed premiums and death benefit. The company holds the second place spot in the J.D. Power customer satisfaction ranking.
  • MassMutual: Winner of a 2024 Bankrate Award for Best Whole Life Insurance, MassMutual scores above average on the J.D. Power customer satisfaction ranking. It has also earned the highest score possible (A++) from AM Best, indicating that it manages its financial resources carefully. MassMutual offers a range of rider options, including waiver of premium, accelerated death benefit and guaranteed insurability.
  • New York Life: New York Life is another above-average scorer with J.D. Power and AM Best. It offers three whole life options: a standard whole life policy; Custom Whole Life, which allows you to enhance cash value growth or opt for higher premiums within a shorter duration; and Secure Wealth Plus, which features an expedited underwriting process and cash value that is set up to increase most during the policy’s initial years.
  • Northwestern Mutual: Northwestern Mutual won a 2023 Bankrate Award for Best Universal Life Insurance, and it also offers whole life insurance policies with guaranteed payouts, dividend options and level premiums. It scores above average with both J.D. Power and AM Best. Available riders include waiver of premium, additional purchase and long-term care.

How much does whole life insurance cost?

Generally, the cost of whole life insurance is more expensive than the same amount of term life insurance coverage. This is because whole life insurance policies are guaranteed to be paid out as long as the policy remains in force and premiums are paid.

Your specific whole life insurance policy rate is determined by multiple factors, including the amount of coverage you choose and the type of underwriting involved. Other factors that may impact your premium include:

  • Age
  • Health status
  • Hobbies
  • Occupation

Is whole life insurance worth it?

Some people may prefer whole life insurance because it remains in effect for the insured’s entire life and because the cash value component may add additional financial flexibility. However, these financial components also typically contribute to a higher rate compared to premiums associated with a term life insurance policy. Whether or not whole life insurance is worth it to you likely depends on your financial situation, budget and long-term goals.

Whole life insurance may be best for people who want a policy to remain in force for their entire lifetime and guarantee a payout to their beneficiaries. The cash value may provide a future nest egg to pay for a child’s education or supplement retirement.

On the other end of the spectrum, some people may prefer the shorter-term coverage that comes with a term life policy. For instance, if you only want coverage for a limited amount of time — such as when your children are dependent or while you still owe on a mortgage — you may find that a term policy better suits your needs. If deciding between term life vs. permanent life insurance, evaluating your immediate and long-term needs, budget and purpose for life insurance may help you make a choice.

Pros and cons of whole life insurance

Here is why whole insurance can be good, and some of the cons that can be associated with this policy as well.

Green circle with a checkmark inside


  • Provides death benefit for your beneficiary
  • Policy lasts your entire life (as long as you pay the premium)
  • Premiums are fixed
  • Able to borrow from the cash value of policy
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  • Premiums are more expensive than term insurance
  • Taking a loan reduces death benefit to your beneficiaries unless you pay it back
  • Cash value accrues slowly, with low interest
  • More complex than term insurance

Frequently asked questions

    • Whole life insurance policies are designed to provide loved ones with a death benefit after your passing rather than to act as an investment vehicle. While the low-risk cash value component of insurance may be a nice added perk to a whole life insurance policy, other forms of investment, such as a 401(k), IRA or stocks, are likely going to generate higher returns. Speak with a financial advisor to help you determine whether or not a whole life policy is right for your situation.
    • Yes, you may have the option to sell your life insurance policy. Depending on your situation, you may qualify for a viatical settlement or life settlement. A viatical settlement is reserved for policyholders with a life-threatening illness and short life expectancy— usually less than two years. While this type of settlement has a payout between 50 to 70 percent of the policy’s death benefit, it may require an assessment and medical exam.

      A life settlement has a lower payout amount, usually between 10 and 25 percent, since it is geared towards healthy seniors with a longer life expectancy. Additionally, it is likely you will need to pay taxes on a life settlement payout. If you are considering selling your life insurance policy, contact your life insurance agent for guidance on tax implications and assistance with finding a reputable viatical settlement company.
    • Yes, you can cancel or surrender a whole life insurance policy. There are typically two scenarios.

      The first is to cancel during your free look period. Most policies have a free look period that begins immediately after you purchase a policy. This period lasts 10 to 30 days, depending on the insurance company and state requirements. During this period, the policyholder has time to review the ins and outs of their coverage and can cancel the policy to receive a full refund if they decide it isn’t right for them.

      The other option for whole life owners is surrendering the policy. Permanent life insurance policies with cash value, like whole life insurance, also have a surrender value, essentially, the amount you receive if you decide to cancel it once the free look period has expired. The money you receive, if any at all, will depend on how long you carried the policy. If you cancel the policy within the first few years, the surrender value will basically be non-existent once surrender fees are applied. If you decide to cancel the policy several years in, after 15 or so years, your policy has had more time to build equity. Before surrendering your policy, check with your agent to confirm what the surrender value of your policy is and if there are any alternatives to canceling that may meet your financial needs.
    • Whole life insurance offers permanent coverage, while term life insurance offers temporary coverage. As long as premiums are paid and the terms of the policy are met, the whole life policy will pay out a death benefit to the insured’s beneficiaries. A term life policy will only pay out the death benefit if the insured dies while the term policy is in force. Term life will expire after a certain number of years, although some policies may have the option to convert to a permanent policy.
    • How much life insurance you need typically depends on your situation and the goals you have for your policy. You may also want to keep in mind your individual financial obligations when determining the amount of life insurance you need. For instance, if you have personal debt, a mortgage or upcoming college tuition payments for your children, you may want to factor in those expenses. If you financially support someone into adulthood, such as a family member with a disability, you may want to factor their living expenses into your life insurance coverage as well. A licensed agent or certified financial professional may be able to guide you in estimating how much life insurance you need. Use Bankrate’s life insurance calculator as a starting point.