What is whole life insurance?
Whole life insurance is a permanent life insurance policy with the following features:
- Coverage that lasts your lifetime, as long as you pay your premiums.
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- Guaranteed death benefit.
- Cash value you can access while alive.
- Guaranteed rate of return on the cash value account.
How does whole life insurance work?
When you purchase a whole life insurance policy, you make premium payments in exchange for coverage that will last your lifetime. In most cases, a whole life insurance policy also includes a cash value component.
If you die and your policy is in good standings — meaning your premium payments are current — your beneficiary will receive a guaranteed death benefit. You can choose more than one beneficiary to receive the death benefit and dictate how the benefit is divided. For instance, you could leave your spouse 50% of the death benefit and two children 25% each.
The cash value of your whole life insurance policy will accumulate over time according to the policy’s guaranteed rate of return. When enough accumulates, you may be able to use it to cover your premium payments or borrow against, depending on your policy terms.
Who needs whole life insurance?
shadow: 0 0 #0000; --tw-ring-offset-width: 0px; --tw-ring-shadow: 0 0 #0000; --tw-rotate: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 #0000; --tw-shadow: 0 0 #0000; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(229, 231, 235); box-sizing: border-box; font-family: Georgia, sans-serif, arial; line-height: 27px; margin: 0px 0px 1.33333em; word-break: break-word;">Whole life insurance is best if you want a policy that doesn’t expire — as long as you pay your premiums — and offers an additional savings vehicle.Mark Friedlander, the director of corporate communications at the Insurance Information Institute, echoes this sentiment.
“Permanent life insurance is ideal for a consumer who wants life insurance for as long as they live,” he says. “They’re also best for those who want lifetime protection since you never have to worry about renewing or outliving your coverage.”
Whole life insurance can also be a good fit if you want to:
- Cover end-of-life expenses, such as funeral costs, regardless of when you die.
- Cover estate taxes, especially if your estate exceeds the federal estate tax or you live in a state with lower state tax limits.
- Build a trust or inheritance to provide for your children after you die or leave them with a lump sum of cash as an inheritance, though you may want to speak to a financial advisor who can determine if this is the best option for your intentions.
- Create a business continuity plan for a business partner that uses the death benefits as part of a buy-sell agreement, allowing the surviving partner to purchase the other’s share.
Still, whole life insurance isn’t for everyone.
Whole life insurance also may not be the right choice if you’re only looking for life insurance coverage for a specific period of time, such as until you pay off your mortgage, your spouse’s retirement benefits kick in or your child finishes school. In that case, a term life insurance policy may be a better, more affordable option.
How much does whole life insurance cost?
Whole life insurance rates are higher than term life insurance rates because of the duration of coverage and the cash value component.
How much you pay for a policy will depend on a number of factors, including your age and gender. The younger you are, the lower your rate will be, and men typically pay more for a whole life insurance policy than women.
For instance, a 30-year-old woman can expect to pay an average of $180 a month for a $250,000 policy, based on our analysis. If that same woman waited until she was 40 to purchase the policy, her rate would increase to $262, per month on average.
A 30-year-old man in good health purchasing a $250,000 policy can expect an average monthly premium of $201 a month. At 40, he’d pay about $293 for whole life insurance.
Whole life insurance rates
Here are the average monthly premiums for whole life insurance policies of different coverage amounts, by age and gender.
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|---|---|---|---|---|
| Female, 30 | $180 | $352 | $697 | Compare Rates scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-shadow-colored: 0 0 #0000; --tw-shadow: 0 0 #0000; --tw-skew-x: 0; --tw-skew-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; border: 0px solid rgb(229, 231, 235); box-sizing: border-box; font-family: Georgia, sans-serif, arial; font-size: 12px; line-height: 15px; margin: 0px; padding: 0px; word-break: break-word;">Compare quotes offered by participating partners |
| Female, 40 | $262 | $506 | $1,005 | Compare Rates Compare quotes offered by participating partners |
| Female, 50 | $387 | $752 | $1,496 | Compare Rates Compare quotes offered by participating partners |
| Male, 30 | $201 | $394 | $781 | Compare Rates Compare quotes offered by participating partners |
| Male, 40 | $293 | $564 | $1,121 | Compare Rates Compare quotes offered by participating partners |
| Male, 50 | $445 | $847 | $1,686 | Compare Rates Compare quotes offered by participating partners |
It’s important to note that policy premiums only tell a part of the “cost” story. When considering a whole life insurance policy, you should also look at:
- Internal policy fees and charges.
- The portion of your premium that goes toward your cash value account.
Ask the insurer for a detailed expense page that allows you to compare not only your premium, but internal fees as well.
Factors that impact the price of whole life insurance
How much you’ll pay for whole life insurance will depend on several factors, including your:
- Age and gender.
- Height and weight.
- Medical history.
- Medical history of your parents and siblings.
- Prescription history.
- Nicotine and marijuana use status.
- Substance abuse.
- Credit history.
- Desired amount of whole life insurance.
- Add-ons or riders selected.
- Hobbies or profession, if considered high-risk.
- Driving record, especially high-risk risk offenses like DUIs or speeding tickets.
According to the 2023 Insurance Barometer Study by Life Happens and LIMRA, only a quarter (24%) of people correctly estimated the true cost of a policy for a healthy 30-year-old, which is around $200 a year. More than half of Gen Z adults (55%) and 38% of Millennials thought it would be $1,000 or more.
How much whole life insurance do I need?
Your whole life insurance coverage needs are unique to your financial situation and your reasons for wanting coverage. There are several considerations that can help you determine how much coverage you need, including:
- How much of your salary you’d want to replace and for how long.
- Any debts you want to be covered, such as a mortgage, child care expenses or tuition.
- End-of-life expenses you want to be covered, such as the cost of a funeral.
- Any intention to use life insurance as an inheritance or trust.
- Existing assets, such as savings or retirement accounts that may reduce your whole life insurance needs.
How to choose the best whole life insurance company
If you’re thinking of purchasing a whole life insurance policy, there are a few key steps you can take to ensure you find the best policy and plan.
1. Decide how much whole life insurance coverage you need. Alison Salka, Ph.D., senior vice president and director of research at LIMRA, suggests the best place to start is by understanding what your financial goals are. Ask yourself what you want this product to accomplish for you.
You can start with a needs assessment on your own, but Salka recommends working with a financial professional who can take a holistic look at your entire financial picture to see how life insurance fits. That’s particularly true for permanent life insurance products, she says, since they can be more complex than term life insurance.
As mentioned above, there are several factors that dictate how much whole life insurance you need, including your income replacement goals, existing debts, existing assets and any other intentions you may have for the death benefit, such as covering a child’s tuition or your funeral expenses.
2. Evaluate insurance companies. Doing online research is a great way to start your search. You can also reach out to friends and family or a financial expert for feedback and recommendations.
Once you have a list of potential insurers, turn to websites like AM Best to check each whole life insurance company’s financial strength rating, which will tell you the likelihood of a company being able to pay out on a life insurance claim.
3. Get and compare life insurance quotes. Get quotes from each whole life insurance company on your shortlist, making sure to request quotes for the same type and amount of coverage.
Some whole life insurance companies offer online quotes, though you may need to speak directly with an agent to complete the quote process.
Don’t stop at comparing whole life insurance rates, however. Extend your comparison to include any internal fees charged by the life insurance company, as these can reduce the portion of your premium that goes toward the cash value of your policy.
4. Compare policy features and benefits. If you’re having a tough time narrowing down your options, even after comparing rates and fees, take note of any features and benefits available. One whole life insurance company may include some add-ons with a policy while another might charge an additional fee for the same riders.
Is whole life insurance worth it?
Whole life insurance may be worth it if you want coverage for life and a cash value component that grows tax-deferred and can be tapped into while you’re alive.
If a cash value component is important to you but you want more control over how it grows, consider other permanent life insurance policy types, such as variable life insurance or universal life insurance.
If you only want life insurance coverage for a short period of time, such as 20 or 30 years, consider a term life insurance policy. Term policies are cheaper than permanent life insurance options, though they don’t carry a cash value component.
Whole life insurance: Pros and cons
Alternatives to whole life insurance
Whole life insurance isn’t for everyone, and there are plenty of alternatives that may better suit your financial needs or long-term goals. Here are a few options worth considering.
- Other permanent life insurance products. Universal life, variable life and other similar products provide lifelong coverage and a cash value component.
- Term life insurance. You may want to consider choosing term life insurance if you only want to lock in your life insurance rates for a specific amount of time, you have a limited budget or you have other investment vehicles your loved ones can rely on after your death.
- Traditional or Roth IRAs. These individual retirement accounts allow you to save up to $6,500 ($7,500 if you’re 50 or older) annually, according to current IRA contribution limits. The account is designed to accommodate your financial needs during retirement, but you can name a beneficiary who could receive the funds and then use them much like they would a life insurance death benefit.
- Employer-sponsored 401(k) plans. Like IRAs, a 401(k) caters to your retirement needs but the funds can be left to a beneficiary if you die before depleting the account. The beneficiary can use these funds to cover expenses as needed.
- Fixed annuities. Fixed annuities are investment accounts that offer a specific rate of return and stream of income during your retirement years. Like other retirement accounts, the funds can be left to a beneficiary to use as a death benefit.
Learn more about life insurance
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
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