Whole Life Insurance: Benefits, Cost, and How It Compares to Term Life

Whole life insurance is often praised for its lifelong coverage and cash value growth, making it a popular choice. But is it the best choice for you?

In this guide, we’ll explain how it compares to term life insurance, its pros and cons, and its cost—all in an easy-to-understand way.

Whole life is a permanent life insurance policy offering more than just protection. It also builds cash value over time that you may borrow from, use to supplement retirement income, or take cash withdrawals. Unlike term life insurance, which only lasts for a set number of years, whole life insurance covers your entire life.

Key features:

• Lifelong coverage – Your policy lasts your entire life.
• Guaranteed cash value growth – Your policy builds cash value over time.
• Fixed premiums – Your rates won’t increase.
• Tax Advantages – Cash value grows tax-deferred, and loans may be tax-free.

There are several types to fit your needs:

• Traditional – Guaranteed premiums, cash value, and death benefits.
• Modified – Lower initial premiums that increase later.
• Indexed – Cash value growth tied to a stock market index.
• Participating – Earns dividends based on the insurance company’s performance.
• Non-Participating – No dividends but still offers guaranteed benefits.

Lifetime protection, cash value growth, and tax-advantaged savings appeal to everyone. It’s a good option when using life insurance in retirement planning.

And while it may be a great option, it’s not for everyone.

The differences between term life insurance and whole life include:

• Term Life Insurance:
  • Provides coverage for term lengths between 1 – 40 Years.
  • No cash value accumulation
  • Affordable coverage to protect income, cover mortgages, and pay debts.
  • Lower premiums

• Whole Life Insurance:
  • Covers you for your entire life
  • Builds cash value over time
  • It can be used for supplemental retirement income, policy loans, etc.
  • More expensive than term life insurance.

An indexed policy may provide market-tied growth potential for those considering cash value growth.

The first step is determining your life insurance needs by categorizing short-term and long-term goals. We can help you with this, and our Life Insurance 101 guide is a great resource.

Another type of permanent life insurance is universal life insurance. Like whole life insurance, universal offers lifetime guarantees and cash value accumulation.

Universal life insurance does not pay dividends or paid-up additions. Some policies offer interest crediting tied to a stock market index, but most do not.

A universal life policy may provide lifetime guarantees at a lower premium than whole life when considering permanent insurance. It’s a good idea to compare both options.

Whole life works by collecting level premiums allocated toward your policy’s death benefit and a cash value component. This coverage lasts for your lifetime, provided you pay the premiums.

If you have a participating policy, the insurance company may pay non-guaranteed dividends based on its financial performance, including mortality expenses, operational costs, and investment returns.

Dividends can be taken in cash, used to reduce premiums, reinvested to increase the cash value, or used to buy additional coverage.

There are SIX critical features and benefits you must understand before buying a whole life:

1. Death Benefits – Guaranteed vs. Non-Guaranteed
2. Premiums – Guaranteed vs. Non-Guaranteed
3. Cash Values – Guaranteed vs. Non-Guaranteed
4. Dividends – Understand how dividends affect your policy.
5. Riders – Understand what riders do for your policy and how they affect it.
6. Policy Loans – Learn how they can help or hurt you.

Many people wrongly believe that policies are completely guaranteed, which may not necessarily be true.

The agent must provide you with a product illustration from the company. This illustration will be 10-20 pages long and provide the information you need to make an informed decision.

With whole life insurance, there is typically a base amount of coverage guaranteed for life, followed by non-guaranteed death benefits consisting of a one-year term and paid-up additional insurance purchased each year with the dividends from the life insurance company.

The non-guaranteed death benefits in the illustration are based on fixed assumptions, but the values will fluctuate based on actual performance, which may be better or worse.

In addition, withdrawing cash or borrowing from your policy will affect its performance. Living benefits may be a better option.

The life insurance death benefit equals the current death benefit minus any outstanding policy loans.

Premiums are guaranteed for the base coverage, and non-guaranteed premiums are tied to cash value and dividend performance.

Important Note – While the non-guaranteed premium may remain the same in all years, the policy performance will fluctuate. The life insurance company will send you an annual report you need to review and compare to the original illustration each year.

If you see significant differences between the illustration and the annual report, you may need to pay additional premiums to keep the policy performing as originally illustrated.

Your policy will have guaranteed and non-guaranteed cash values. When you die, your beneficiary receives the death benefit, not the cash value. They don’t get both.

The appeal is the potential to accumulate cash, which can be accessed using the tax-deferred and tax-advantaged strategies that policy loans offer.

Whole life insurance policies are typically structured to “mature” or “endow” at age 100. This means that the policy’s cash value equals its death benefit. When this occurs, the insurer may pay the cash value (minus any loans) directly to the policy owner.

This is different from a Modified Endowment Contract (MEC). If you overfund your whole life policy and put too much cash into it for tax advantages, the policy may be classified as a MEC, and any distributions or loans will be subject to a 10% penalty tax.

You may use the cash to supplement retirement or how you see fit.

As the Mass Mutual disclaimer explains, borrowing against a policy can be complicated even though you may do so.

Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.

Mass Mutual

Ask for illustrations showing future withdrawals to give you a better idea of what to expect.

A dividend-paying policy is called a “participating” policy and one that doesn’t is called a non-participating or interest-sensitive whole life.

The IRS defines dividends as a return of the excess premium you paid into the policy; therefore, they are not taxable.

And while dividends are not guaranteed, companies that pay dividends quickly point out their history of consistency and performance. The insurance company declares the annual dividend rate to be paid out.

When you buy your policy, you get to choose how your dividends will be used:

• Paid to you in cash each year
• Used to lower your overall premiums
• Purchase Paid-Up Additions (PUA)
• Used to buy one-year term insurance
• Dividends may be paid towards outstanding loan balances or interest.
• Accumulate in the policy as cash value.

The most common dividend option selected is to purchase Paid-Up Additions. A key benefit of whole life insurance policies that pay dividends is that the dividend purchases additional insurance, increasing your coverage.

You may change how dividends are applied to your policy in future years.

Companies offer life insurance riders so you can customize your policy. Examples include long-term care or living benefits riders, accelerated benefits, waiver of premiums, and term insurance riders.

We don’t give tax advice. You have to ask your CPA for that.

A brief overview – Policy loans give you access to the cash value of your whole life policy. If done correctly, you can borrow the proceeds from your policy for supplemental retirement income.

You don’t have to repay the loans as long as the policy remains active.

A problem occurs when a policy lapses. In that scenario, the loan proceeds received may be treated as taxable income.

Whole life insurance can be complex and is sometimes criticized, with concerns about cost leading to terms like ‘whole life insurance scam.’ However, it remains popular for those seeking guarantees and cash-value options.

Some pros and cons to consider:

The knock against whole life insurance is about the price. In our experience reviewing policies, whole-life buyers tend to be underinsured.

When shopping, compare policies from reputable companies. Some of the top companies include:

Several of the above companies also provide group life insurance policies to employers, and NY Life is the company behind AARP permanent life insurance.

Different types of policies are available:

• Single Premium – Onetime premium
• Limited Pay – 10, 15, 20 years, to age 65, etc.
• Participating – Offers a dividend
• Interest Sensitive – depends on interest rate performance.
• Guaranteed Issue – No medical underwriting
• Indexed – interest is credited based on a stock market index.
• Survivorship – Covers two lives for estate planning.

Furthermore, traditional death benefit settlement options such as lump sum, life income, and fixed amount death benefits are available for whole life.

Whole life insurance is more expensive than term and universal life insurance because of its lifetime coverage and cash value feature. The exact cost depends on gender, age, health, and your chosen death benefit amount.

If you are uninsurable, your best bet may be a small guaranteed issue final expense policy.

Policies vary widely, so it’s difficult to spreadsheet premiums for whole and term life.

What if you need a massive whole life insurance policy?

How much does a 10 million dollar whole life insurance policy cost? A lot!

Age	Female	Male
35	$108,450	$128,450
40	$133,050	$157,250
45	$162,450	$193,750
50	$209,450	$242,850
55	$267,650	$311,350
60	$351,850	$408,250
65	$456,850	$548,250
70	$640,950	$711,950

The above does not include the potential for the death benefit to grow over time. For example, the death benefit available at age 100 for the above policies grows substantially based on the non-guaranteed assumptions.

$10 Million Dollar Death Benefit at Age 100 Based on Assumptions (Non-Guaranteed)

Age	Female	Male
35	$41.2 Million	$45.9 Million
40	$37.8 Million	$42.1 Million
45	$34.4 Million	$38.7 Million
50	$32.5 Million	$35.7 Million
55	$30.7 Million	$34.0 Million
60	$29.3 Million	$32.3 Million
65	$27,321,004	$31.6 Million
70	$26,565,572	$28.3 Million

If you need a substantial policy, contact us today. We’ll provide you with feedback from all the companies we work with.

Some companies offer guaranteed acceptance policies if you want a life insurance policy of $25,000 or less.

These are mainly used as life insurance for seniors.

We have guaranteed AIG, Kemper, Wellabe, United of Omaha, and Gerber Life acceptance policies.

Initially, the death benefit is graded during the first few years of the policy.

Most of these types of policies require little, if any, medical underwriting.

Do you use tobacco products? If you smoke cigars, chew tobacco, or pipe tobacco, we can get you non-smoker rates with the right companies.

Whole life can be a great option if you want permanent coverage. It should be compared to universal life insurance options, which offer similar guarantees and cash value at a lower price.

Request a life insurance quote today to better understand costs and potential cash growth.

We’ll help you find the best policy to meet your needs.