Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Oct 25, 2021

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Simply put, “whole life insurance” is a type of life insurance in which the insured is covered for their entire life.

You’ll usually see the word “lifetime” thrown into the marketing materials, which evokes a strong emotional response. But it’s true… whole life insurance provides life insurance protection for as long as you live.

The types of life insurance can be divided into two groups: term life insurance and permanent life insurance.

With a term life insurance policy a specified period of time is decided on when the policy is first issued.

In most cases, an insurance premium is paid monthly or yearly throughout the insured’s lifetime, or at least until a specific age.

However, it’s also possible to obtain a whole life insurance policy with different payment terms including an upfront lump sum payment.

If paid monthly or annually, the whole life premium payments are typically fixed.

Whole life insurance is a type of permanent life insurance and has a cash value component that builds value over time from interest. It combines an investment account and an insurance product. As long as you pay the premiums, your beneficiaries can claim the death benefit of the policy when you die.

Whole Life Insurance Builds Cash Value

One common trait of whole life insurance policies is that they build up a cash value over time. Part of the life insurance premium payment for whole life insurance will accumulate in cash value account which increases over a certain period of time and can be accessed.

This money can be “borrowed” and repaid to the account over time at usually favorable terms.

The accumulation of cash value is the major difference between whole life and term life insurance.

For example, in some cases you might be able to borrow from it to purchase a home, tax-free.

Additionally, whole life policies often feature a guaranteed death benefit, so your beneficiaries will always get something, regardless of when you pass.

Another common feature to whole life is dividends. The life insurer may pay out regular dividends that can be cashed out, used to pay future premiums, or reinvested to purchase additional life insurance coverage.

Lastly, whole life policies tend to come with a guaranteed rate of return for the cash value component of the policy, so you’ll always earn at least X on your money.

The hitch with whole life, like many other life insurance products, is determining the investment value versus other vehicles.

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Types of Whole Life Insurance

There are several types of whole life insurance policies available in the market today, though you might see all types of gimmicky names for it depending on the company you research.

Non Participating – This is your basic whole life insurance policy. There isn’t a “profit sharing” piece associated with dividends. The insurer simply charges what they believe will earn them a profit and lives with the outcome.

Universal life – this is the newest type of whole life insurance. The premium payments may vary based on how your fund is performing.

Single pay (premium) policies – The name says it all. This whole life policy is obtained by paying the full premium upfront at the time of purchase. Simple, but possibly more expensive if inflation is considered.

Limited pay – This functions similar to a term life policy on the premium payment side…not the coverage period side, which is for your entire life. You will make premium payments for a specified period of years, or up to a certain age; 65 for example.

It’s possible to access the cash value of a policy during the insured’s lifetime, and death benefits are typically passed on to your beneficiaries

Economy based policy – Another policy with attributes of term life insurance, the interest money accrued over the life of the policy is parlayed into the purchase of more term life insurance.

Participating policy – This policy allows the insured to “participate” in the policy over time by receiving benefits based on the profits acquired by policies written by the insurance company, referred to as dividends.

Final Expense – designed to cover burial costs; premiums are often guaranteed to a very old age. However, the death benefit is generally pretty limited.

The whole life insurance market has many more options than those outlined above.

Whole life insurance offers three types of protection: a guaranteed minimum rate of return on the cash value, the promise that your premium payments won’t go up and a guaranteed death benefit that won’t go down.

It is important you purchase life insurance from an agent you can trust and a reputable life insurance company. There are other types of permanent life policies that can provide lifelong insurance that are not whole life insurance: universal life insurance, variable life insurance, and survivorship life insurance.

Get online insurance quotes and consult a local independent life insurance agent to be certain the premium you’re offered is in the right price range for your unique situation.