What Is Whole Life Insurance, and Is It Right for You?

Shopping for life insurance feels a bit like choosing a streaming service — the options are endless, and everyone seems to have an opinion about which is best. If you’re exploring life insurance options, you’re likely considering a whole life policy.

A whole life insurance policy provides coverage that lasts your entire lifetime and builds cash value. It’s different from term life insurance, which expires after a set number of years and doesn’t have a built-in savings component.1 It also costs more — a healthy 25-year-old might pay around $66 monthly on average for a whole life insurance policy.

What is whole life insurance?

Whole life insurance is the “forever” version of life insurance. It protects your loved ones financially for your entire life, not just for a limited time. Some people choose whole life insurance over a term life insurance policy because they want coverage that never runs out and the ability to build up savings gradually.

Here are features that make whole life insurance stand out:

• Lifelong protection: Your coverage stays in place if you keep paying your premiums.

• Cash value growth: Part of your premium goes into a savings account, and you can borrow from it when you need extra cash.

• Guaranteed payout: Your beneficiaries receive a death benefit payout whether you pass away tomorrow or decades from now.

• Fixed premiums: Your monthly payments stay the same throughout your life.

How whole life insurance works

When you buy a whole life policy, you’ll lock in a premium that stays the same year after year. For example, if you start paying $130 monthly at age 35, your premiums will still be $130 monthly at age 65. These predictable payments help with long-term financial planning since most other expenses tend to increase with inflation.

Your premium payment does double duty. A portion goes toward your death benefit — the amount your beneficiary gets when you pass away. But another portion builds up in a cash value account, becoming a financial resource you can tap into. You could borrow against your policy’s cash value to cover an unexpected expense or pay for college tuition.

Whole life vs. term life: How they differ

Term life covers you for a specific period, typically 10, 20, or 30 years. It also only pays out if you pass away during your coverage period. You’ll need to renew your coverage, usually at a higher rate, to keep your protection after the term ends.

Here's a comparison of term life insurance vs. whole life insurance.

Types of whole life insurance

Several types of whole life insurance are available. Each type fits different financial situations and goals. Here’s a look at your options:

• Traditional whole life: You pay the same premium throughout your life. Your policy builds cash value steadily, and your coverage stays in place as long as you keep up with payments.

• Limited payment: Premiums are higher, but you pay for a shorter amount of time. Your payments eventually stop, and your coverage continues for life.

• Single premium: You make one large up-front payment instead of monthly or annual premiums.2

• Joint life: This policy covers two people under one policy, usually married couples. It can pay out after the first death or after both people pass away.

Cost of whole life insurance

You’ll pay more for whole life insurance than term life insurance because your policy builds cash value and covers you for your entire life, not just a few decades. Plus, the insurance company will pay a death benefit with whole life insurance, while most people outlive their term life insurance policies.

Pros and cons of whole life insurance

Before you commit to a whole life insurance policy, consider the pros and cons. It requires you to spend more money over a longer period than term life insurance, so understanding both sides can help you make the right choice.

Who should consider whole life insurance?

Whole life insurance makes the most sense if you want more than temporary coverage. It’s especially valuable if you have a child with special needs — you can funnel the death benefit payout into a special needs trust for financial support long after you’re gone. Business owners might opt for whole life insurance to help with succession planning.

If you mainly want to protect your family while your kids grow up or until you pay off your mortgage, term life insurance might be a better fit. For example, young families can benefit from term coverage and plan to invest the cost difference in a retirement account or college fund.

How much whole life insurance do you need?

To calculate your ideal coverage amount, start by adding up your financial footprint — annual income, outstanding debts, and future expenses you want your policy to cover, like college tuition or retirement funds for your partner.3

Remember to include less obvious expenses you might overlook — who would handle childcare, housekeeping, or home maintenance if you’re not around? How long would your family need financial support to maintain their lifestyle?

For a more precise number, try an online life insurance calculator from a trusted organization like Life Happens. Most life insurance companies also offer online calculators on their websites.

Alternatives to whole life insurance

Not everyone needs whole life insurance. Before committing to a policy, explore other options that could better fit your needs and budget. Here are some alternatives to consider:

Whole life insurance FAQs