Whole Life Insurance Policy: What It Is & Why You Should Get It

Whole Life Insurance Policy
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Whole-life insurance is a flexible option if you desire lifelong coverage. It grows alongside you, accumulating cash value that you can use to help fund the important things in life as your protection needs change. It also looks out for your loved ones by ensuring payment for them after you pass away. Read further to learn how a whole life insurance policy works, the top companies, and its cost.

Whole Life Insurance Policy

Whole life insurance covers the insured for the rest of their lives. It has a savings component where cash value can accumulate, as well as a death payment that is not taxed. Interest is earned without being taxed right away.

In essence, Whole life insurance is a type of fixed-life insurance that protects you for your entire life. There is also variable universal life, indexed universal life, and universal life. So, you can choose a whole life insurance policy that meets your needs from one of the best life insurance providers.

Whole Life Insurance: Types

Depending on how the premiums are paid, there are several different types of whole life insurance.

#1. Level of Payment 

Throughout the term of the policy, premiums stay unchanged. It’s the most popular way to make payments.

#2. Premium Single

Individuals receive protection from the policy for life after paying a one-time, large premium. As a result, this kind of policy is usually a changed investment contract, which has tax implications. 

#3. A Limited Payment

Simply put, you only make a certain number of payments. Premiums will be higher than they would be in a level-payment situation, but you’ll only have to pay them for a certain period. 

#4. Modified Whole Life Insurance 

In contrast to a restricted payment policy, this kind of whole life insurance has lower premiums than a standard policy for the first two or three years and higher premiums than a standard policy in the later years. Eventually, it costs more.

Additionally, whole life insurance policies are further divided into participating and non-participating life insurance policies. Within a non-participating policy, if the premiums are higher than the payouts, the insurer makes money. The insurer does, however, assume the chance of losing money.

How Does a Whole Life Insurance Policy Work?

When you buy a whole life insurance policy for the first time, the premiums are likely to be higher than those for a term insurance policy with the same amount of coverage. However, the premiums for the renewed policy would be higher if you had bought a term life insurance policy and then renewed it after the term ended. However, with some types of whole life insurance, you can choose to pay over a shorter period, like 20 years or until you turn 65.

With this in mind, the rates for a new term policy that you renew could be even higher. Whole life insurance plans can be thought of as investments because they build up a tax-deferred cash value over the policy’s term. Depending on the terms of your policy, you might be able to take money out to pay for things like college, a car, or house improvements.

In addition to that, you might be able to borrow money against the cash value of your whole life policy as well. Interest will be added to the policy loan until it is paid off. If you wait, your death benefit money can be used to pay off the loan.

Whole Life Insurance Policy: What It Covers

Here are a few things whole life insurance covers:

#1. Death Benefit

  • Your beneficiaries are entitled to a lump-sum death benefit that is not taxed when you die.
  • No limits on use apply. Your beneficiaries don’t have to use a death benefit to pay for things like planning your inheritance, a funeral, a burial, or debt settlements after you die.
  • The death benefit amount does not change during the policyholder’s life, but any outstanding loans against the cash value component of the policy will be subtracted from the death benefit the beneficiaries receive.
  • The policy may end on its “maturity date,” which is normally when the insured person turns 100 or 120 years old. What follows depends on whether some businesses pay the cash value and end the policy, while others extend the policy or keep it the same.
  • Policy minimums are usually $100,000, but many can pay out $1 million or more.

#2. Cash Value

  • This component provides a benefit to the insured for as long as they are alive. It functions as a savings and investment account that the protected can access throughout their entire life.
  • When an insurance company says that returns on the cash value amount will be “guaranteed,” it means that they will keep the interest rate at a certain level for the life of the policy.
  • Part of the premium amounts go into the cash value account. The amount grows in value and earns interest without being taxed.

#3. Riders

Insurance riders change the terms of a policy and make the coverage better. You can get around a policy’s maturity date by buying a maturity extension rider, or you can get the death benefit while you’re still alive by adding a rapid death benefit rider.

#4. Eligibility

Eligibility for whole life insurance depends on a variety of factors, such as age, gender, job information, medical history, and way of life. Most insurers want you to get a medical exam, but if you’d rather not, some companies offer a no-exam life insurance option instead of the normal screening process.

Whole Life Insurance Policy Companies

The best whole life insurance companies are stable financially, have great customer service, and make it easy and clear to buy insurance. If you can’t afford it, get a whole life policy to cover your full death benefit. The long-term nature of whole life insurance could also be paired with a term life insurance policy to raise your death benefit for a small fee.

Whole life insurance policies have a component that increases over time, known as the cash value. If you want to save money on taxes while building up for retirement, you might choose whole life insurance over term life insurance. So, you must choose the policy that meets your needs. We have put together a list of the best whole life insurance companies to get you started on your search.

Whole Life Insurance Policy Companies: Tips To Choose The Best Companies

There are some important things you can do to make sure you get the best policy and plan if you want to buy whole life insurance.

  • Figure out how much whole life insurance you need. 
  • Look into different insurance companies. 
  • Get prices on life insurance and make your choice. 
  • Look at the pros and cons of each policy.

Whole Life Insurance Policy Companies: Examples

To help you pick the best life insurance companies for your needs and situation, we ranked dozens of companies based on things like rating agencies’ ratings of customer satisfaction (JD Power’s Individual Life Insurance Study) and financial stability (AM Best).

#1. New York Life

This is one of the largest life insurance providers in the country, and it has the second-longest history of dividend-paying among the firms we looked at (only Penn Mutual has a longer record, at 175 years). The company offers multiple living benefits on its whole life policies (sometimes called accelerated death benefit riders), which let you receive a portion of the death benefit before death in the case of a chronic or terminal sickness. It’s a top choice for the best life insurance companies for seniors as well.

#2. MassMutual

Overall, MassMutual is a great insurance company.  AM Best gave MassMutual its highest grade, an A++ (superior). Established in 1851, it came in third place out of 22 companies in the 2023 J.D. Power U.S. Individual Life Insurance Study. It also offers whole life insurance to people as old as 90, and compared to its size, it has gotten very few complaints from customers. However, unlike most of its rivals, you won’t be able to find policy information online. Instead, you’ll have to talk to an agent (or have one call you) to get that information.

#3. State Farm

In J.D. Power’s U.S. Individual Life Insurance Studies from 2020 to 2023, State Farm has consistently been rated the best life insurance company overall. The study ranked customer satisfaction for each insurer based on how well they communicated, interacted with customers, set prices, offered goods, and provided policy explanations. As you might expect, State Farm hasn’t had many customer complaints turned in to the NAIC for a business of its size. Additionally, the company received a grade of A++ (superior) from AM Best, indicating that it has a superior capacity to uphold its ongoing obligations. 

#4. Northwestern Mutual

Our choices on this list are all based on the idea that a whole life insurance policy company’s financial security is one of the most important things to look for. Among these companies, Northwestern Mutual stands out. According to AM Best, the company has an A++ rating, which means it is excellent. Fitch and Moody’s also give it the best ratings (AAA and AAA).

Additionally, compared to its size, it had the fewest complaints of all the companies on this list and the fourth-fewest of all the insurance companies we looked at. Furthermore, Northwestern Mutual has distributed dividends to qualified members annually for more than 150 years.

#5. Guardian

The best ranking for financial strength goes to Guardian, which gets an A++ from AM Best. For those interested in term life plans, Guardian’s insurance tool on their website makes it easy to get a sense of how much coverage might cost. While looking at different policies, we found that Guardian’s level-term insurance lets you move to a whole-life policy for free in the first five years if your needs change. This is a feature that most other policies charge extra for as an add-on.

Whole Life Insurance Policy Cost 

Whole life insurance policy plans cost a lot more on average than term life insurance. According to Investopedia research that used Quotacy, the average monthly premium for a $500,000 whole life insurance policy runs from $247 for a woman aged 30 to $887 for a man aged 60. For the same amount of coverage, monthly premiums for term life insurance run from $25 for a woman 30 years old to $241 for a man 55 years old.

Whole Life Insurance Policy Cost:  Factors That Affect Costs

The number of whole life insurance policy plans you choose will help determine your cost, along with:

  • Age and gender
  • Height and weight
  • Past and current health conditions
  • The health history of your parents and siblings
  • Nicotine and marijuana use, including nicotine patches and gum
  • Substance abuse
  • Credit
  • Criminal history
  • Driving record (especially DUI convictions and moving violations, such as speeding tickets)
  • Dangerous hobbies and activities (such as piloting planes or rock climbing)

With whole life insurance, there are a variety of other features and terms that can also affect the price, such as:

#1. Pay Period

One option is to pay for the whole policy in a short amount of time, like 10 or 20 years. Due to the upfront payments, the rate would go up by a large amount.

Guaranteed return rate: Some companies offer a better-guaranteed return, and as a result, the annual premiums may be higher.

#2. Crediting Dividends

Many whole life plans offer a dividend, and policyholders can pick how they want to get it. It lowers your yearly out-of-pocket cost if you get your dividend payments applied to your premiums.

What are the disadvantages of a whole life insurance policy?

Due to the lifelong coverage and cash value component, whole life insurance comes with higher premiums.

Can I cash out my whole life insurance?

One of the ways to do that is to cash out or surrender the policy.

What is the biggest risk for whole life insurance?

Mismatches With Policyholder’s Stage of Life

How long does it take for whole life insurance to build cash value?

You should expect at least 10 years to build up


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