How whole life works
Part of each premium pays for the insurance and part goes into the policy’s cash value. The cash value grows over time on a tax-deferred basis. You can borrow against it or, if you cancel the policy, receive its surrender value.
Some whole life policies are “participating,” which means they may pay dividends. Dividends are not guaranteed.
Reasons people choose whole life
- Coverage that never expires, for final expenses or leaving an inheritance.
- Predictable, level premiums.
- Cash value you can borrow against for emergencies or opportunities.
- Estate planning, or providing for a family member who will always need support.
Things to know
- Whole life costs much more than term for the same death benefit.
- Loans you don’t repay, plus interest, are subtracted from the death benefit.
- Cancelling in the early years usually returns far less than you’ve paid in.
Common questions
What is cash value?
It’s a savings part of a permanent policy that grows over time. You can borrow against it or withdraw it, which may reduce the death benefit and may have tax effects.
Is whole life a good investment?
Whole life is insurance first. It can be part of a long-term plan for people who want lifelong coverage and steady, guaranteed growth, but it isn’t a substitute for retirement savings. Your agent can explain the trade-offs.
Can I get whole life without a medical exam?
Some insurance companies offer smaller whole life policies, often for final expenses, with only health questions. Larger policies usually need more medical information.