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When it comes to whole life insurance, many opt to purchase it because it typically comes with level premiums and a cash value account that can accumulate interest and/or capped returns. But it may not be the best option for everyone — learn more about the pros and cons of whole life insurance, and how it works to protect you and your loved ones’ financial well-being.

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Key takeaways
  • Whole life insurance is a permanent policy that remains in force for your entire life, as long as premiums are paid, and guarantees a death benefit.
  • Whole life insurance policies may cost two to three times more than term life insurance policies because of the expected payout.
  • Whole life insurance policies usually have a cash value component that you may be able to put towards premiums when enough funds accumulate.

What is whole life insurance?

As long as premiums are paid, whole life insurance provides coverage for an insured’s entire life in most circumstances. The death benefit payout is also essentially guaranteed in the event of the policyholder’s passing. Whole life policies include a cash value component, which is an account that accumulates funds over time.

The policyholder can also choose to borrow against the money during their lifetime under certain circumstances. This account is funded by the policy’s premiums.

How does cash value work?

The cash value component of a whole life insurance policy can be used in a variety of ways and has a few tax considerations to keep in mind. You may borrow against it, use it to pay premiums or make tax-free withdrawals, within policy limits. Withdrawals over the amount of the cash value may be considered taxable income and will reduce the death benefit amount that goes to your beneficiaries. Your beneficiaries will also not be able to access this cash value when you pass away, as it can only be used while you are alive.

Knowing how to leverage the cash value can be a useful tool. When you borrow against the cash value amount, you will not have to undergo a lengthy approval process from a bank or lender, and you will likely enjoy a lower interest rate. Borrowing against the cash value account may be the right fit for individuals in a pinch who want a loan with an easy approval process. Additionally, a loan against the cash value is not reported to credit bureaus, meaning it does not impact your credit score. Just remember that any amount that remains unpaid when you pass will likely be deducted from the death benefit total.

Best whole life insurance

Many regional and national life insurance companies offer whole life policies, so choosing the right one will require some research. Bankrate’s list of the best whole life insurance companies may be a great place to start your search. To determine this list, our insurance experts chose these providers based on the following considerations: customer satisfaction rankings from J.D. Power’s 2021 U.S. Individual Life Insurance Study, financial strength scores from AM Best, reported complaints from the National Association of Insurance Commissioners (NAIC), available coverage options and digital policy management tools.

The cost of whole life insurance

Generally, 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. As such, whole life policies might also come with a lower potential death benefit compared to a term policy.

However, whole life premiums remain stable and the policy comes with a cash value account, which policyholders can leverage for other financial needs. Your specific whole life insurance policy cost is determined by multiple factors, including the amount of coverage you choose, your age and your relative health.

Learn more: Affordable life insurance companies

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 adds additional financial flexibility. However, these financial components also 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 depends on your financial situation, budget and long-term goals.

On the other end of the spectrum, many people 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 in school or while you still owe on a mortgage — you may want to apply for a term life insurance policy just for the period of time when the financial protection is most critical. Term policies are typically much more affordable, as a payout is significantly less likely to occur. If deciding between term life vs. permanent life insurance, knowing what your immediate and long-term needs are, budget and purpose for life insurance can help you make a choice.

Frequently asked questions

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