Whole Life Insurance Definition

It is lifelong coverage with fixed premiums, a guaranteed death benefit and guaranteed cash value growth.
Aug 25, 2022

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Whole life insurance is a popular type of permanent coverage. It can last your entire life, has a guaranteed death benefit and provides guaranteed cash value growth. Whole life is more expensive than term life insurance, which covers you for a fixed number of years only and doesn't build cash value.

Definition of whole life insurance

Whole life is a type of permanent life insurance. It pays out regardless of when you die and includes cash value — an investment component. When the policy has built enough cash value, you can withdraw or borrow against the funds while you're still alive. Unlike other types of permanent coverage, the cash value in a whole-life policy is guaranteed to grow at a set rate.

Whole life insurance premiums stay the same throughout the length of the policy and the death benefit is guaranteed. If there are no outstanding cash value loans or withdrawals when you die, your life insurance beneficiaries receive the full death benefit.

🤓Nerdy Tip

If you want permanent insurance without the bells and whistles, whole life may be a good fit. However, due to its guarantees, the cost of whole life insurance is typically higher than that of other permanent policies.

Whole-life policy features: Definitions

We've defined a few key features below to explain better how whole life insurance works.

Guaranteed death benefit: The death benefit for whole life insurance is guaranteed; it won't decrease or change over time as long as you pay your premium. Though whole-life policies are considered lifelong, many mature upon the insured person reaching a certain age, such as 100. When the policy matures, the death benefit is paid to the policyholder or coverage can be extended until the insured's death. Therefore, even if you outlive the policy's maturity date, the death benefit is guaranteed to pay out.

Guaranteed cash value: The cash value in a whole life insurance policy is guaranteed to grow at a fixed rate set by the insurance company. A portion of your insurance premium funds the policy's cash value, which grows over time. You can withdraw or borrow against the funds while you're still alive. But keep in mind that withdrawing or borrowing against the policy's cash value without paying it back can reduce the death benefit — the amount your beneficiaries receive when you die.

Fixed premiums: Whole-life premiums are typically fixed, which means they remain level throughout the length of the policy. If you miss a premium payment, your coverage can lapse. In some cases, funds from the cash value can be used to cover the missed premium. But this perk may not apply to all policies.

Dividends: When you buy a whole life insurance policy from a mutual company — one owned by its policyholders — you may receive dividends if the company performs well. Dividends typically aren't taxed as income. Depending on the terms of your policy, you may be able to use the dividends to increase the death benefit or pay your premiums.

More about whole life insurance

Learn more about whole life insurance and find the best policy for you.

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