What Is Whole Life Insurance?
Whole life insurance is a type of permanent life insurance that covers you for your entire life, as long as premiums are paid. Unlike term life, it never expires. It also includes a savings component called cash value that grows at a guaranteed rate set by the insurer. Over time, this cash value can become a significant financial asset.
How It Works
You pay a fixed premium that is higher than term life but never increases. A portion of each premium goes toward the death benefit, and a portion goes into the cash value account. The cash value grows tax-deferred at a guaranteed rate. You can borrow against the cash value or surrender the policy for its cash value if you no longer need the coverage.
Who Is It For?
- People who want lifetime coverage that never expires
- Those interested in building guaranteed cash value
- Estate planning — providing an inheritance or covering estate taxes
- Business owners funding buy-sell agreements
- High-income earners seeking tax-advantaged savings
Pros & Cons
- Coverage lasts your entire lifetime
- Fixed premiums that never increase
- Guaranteed cash value growth
- Cash value can be borrowed against tax-free
- May pay dividends (with participating policies)
- Can be used for estate planning
- Significantly more expensive than term life (5-10x)
- Lower rate of return compared to other investments
- Less flexibility than universal life
- Can take 10-15 years for cash value to become significant
- Surrendering early may result in a loss
What Affects the Cost?
- Age at purchase (cost increases significantly with age)
- Health status and medical underwriting
- Coverage amount (death benefit)
- Insurance company and their dividend history
- Riders and additional features selected
Typical cost: $150-400/month for a healthy 30-year-old with $250K coverage
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