Whole life insurance is permanent life insurance with guaranteed investment growth. It is the most common form of permanent life insurance, but it’s also expensive.
Because part of your premium goes to building your policy’s cash value, whole life insurance is best for those with a need for lifelong coverage. It can also be for those interested in steady cash value growth and a guaranteed payout when they die.
Learn how whole life insurance works to see if this coverage might be a good fit for you.
Whole life insurance definition
A type of permanent life insurance that builds cash value over time. Whole life insurance typically lasts for your entire life as long as you pay your premiums.
Other key terms in this article
Cash value | A savings component within a permanent life insurance policy that grows over time. You can generally use your policy’s cash value to withdraw money, take out a loan and more. |
Premium | The price you pay for life insurance, usually monthly, quarterly or yearly. Premiums for whole life insurance stay the same for the life of the policy. |
Term life insurance | Life insurance that only lasts a set number of years, such as 10, 20 or 30. Term life insurance is suitable for most people. |
What is whole life insurance?
Whole life insurance is a type of permanent life insurance that comes with three key features:
1. It generally lasts your entire life. Just be aware that many policies end if you reach age 100, and the payout may be less if you have outstanding loans when you die.
2. It has level premiums. This means your premiums are locked in and won’t change as long as you have the policy.
3. It has a cash value component. When you pay your premium, a portion goes to your policy’s cash value, which you can think of as a savings account that earns interest over time.
» MORE: Permanent life insurance
How does cash value in a whole life insurance policy work?
The cash value in a whole life policy grows at a fixed rate set by your insurer — typically 1% to 3.5%, according to Quotacy, a life insurance brokerage. This sets whole life insurance apart from other permanent policies, which don’t guarantee returns.
It can take years or even a decade to build up enough cash value to begin tapping into it. Once you have enough cash value, you can start taking out loans against your policy. And when you die, your beneficiaries will typically receive a payout that isn’t subject to income tax.
» MORE: Is life insurance taxable?
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Some whole life insurance policies pay dividends
A life insurance dividend is a payment insurance companies make to policyholders with extra funds from the business year. Essentially, policyholders receive a portion of the insurer’s profits.
Not all life insurance policies offer dividends. To receive a dividend, you need to have a participating policy. This is typically a whole life insurance contract that’s issued by a mutual life company. A mutual life insurance company is owned by policyholders, whereas a stock life company is owned by shareholders.
How are life insurance dividends paid out?
In order to make dividend payments to policyholders, the insurance company needs to collect more money than it needs to pay death benefits, maintain its reserves and cover administrative costs. If the insurer’s board of directors determines it doesn’t need the surplus funds, it can give a dividend payment to policyholders.
Life insurance dividends are paid annually. It’s important to note that dividend payments aren’t guaranteed. However, most insurers that offer participating life insurance policies consistently pay annual dividends.
The company’s ability to pay dividends depends on the accuracy of its projections. These projections include how much it will pay in death benefits, along with expenses and investment performance. If an insurer has more mortality expenses than expected or its investments perform poorly, it may be unable to pay dividends.
How to use life insurance dividends
Policyholders usually have the following options for using their life insurance dividends:
Purchase paid-up additional insurance
You can buy additional whole life insurance that increases your coverage and also builds cash value.
Lower your out-of-pocket premium payments
Dividends can be used to reduce the amount of premiums you pay for the year. For instance, if your annual premium is $1,200 and the policy pays a $200 dividend, you could apply the dividend to the premium and only pay $1,000. You could also use the dividend to reduce the number of premiums. If your $1,200 premium is divided into monthly installments of $100 each, you could use the $200 dividend to skip two months of payments.
Have it paid in cash
If you receive a life insurance dividend, you could simply opt to have the insurer cut you a check and spend the money however you choose.
Use it to reduce the balance of an outstanding policy loan
If you’ve borrowed against the cash value of your life insurance, you could apply the dividend toward lowering the amount you owe or paying the loan interest.
Let it accumulate interest
You can deposit the dividend with the insurer and allow the money to earn interest, then withdraw it whenever you want without reducing the cash value. The interest may be subject to taxes when you withdraw it.
Purchase one-year term life insurance
The amount and cost of term life insurance will depend on your age and other factors.
Most life insurance dividends are considered a return of an overpayment of premium, rather than an investment gain. Therefore, they typically aren’t taxable.
What is the cost of whole life insurance?
In general, whole life insurance is more expensive than term life insurance. This is because it usually lasts your entire life and offers cash value growth. Commission fees might also be rolled into your total cost if you purchased the policy through a life insurance agent.
For a healthy, nonsmoking man buying a $500,000 policy at 40 years old, the annual cost of whole life insurance is $3,180 compared with $321 for a 20-year term life policy, according to LifeStein.com, an online life insurance brokerage.
For a woman of the same age, a whole life policy might cost $2,849 a year compared to $278 for term life. The price rises for smokers as the health issues associated with smoking can make you riskier in the eyes of insurers.
» MORE: Average life insurance rates
Annual whole life insurance rates for nonsmokers
Average annual rates for men | Average annual rates for women | |
|---|---|---|
20 | $1,539 | $1,345 |
30 | $2,207 | $1,929 |
40 | $3,180 | $2,849 |
50 | $4,983 | $4,317 |
60 | $8,335 | $7,304 |
70 | $15,273 | $13,812 |
Source: LifeStein.com. Lowest three rates for each age averaged. Data valid as of Oct. 1, 2026, and rates are subject to change. | ||
Annual whole life insurance rates for smokers
Average annual rates for men | Average annual rates for women | |
|---|---|---|
20 | $2,437 | $2,087 |
30 | $3,686 | $3,173 |
40 | $5,753 | $5,023 |
50 | $9,471 | $8,150 |
60 | $16,279 | $13,903 |
70 | $28,671 | $24,437 |
Source: LifeStein.com. Lowest three rates for each age averaged. Data valid as of Oct. 1, 2026, and rates are subject to change. | ||
Pros and cons of whole life insurance
Pros
Predictable death benefit and premiums.
Tax-deferred cash value that you can borrow against.
Lifelong coverage.
Cons
Higher premiums.
Loans and withdrawals can affect death benefit.
Cash value builds slowly.
Is whole life insurance worth it?
Whole life insurance isn’t the best choice for everyone. But it may be a good option if you fit into any of the following categories.
You’re a high-income earner
If you can comfortably afford the higher premiums or you’re a high-income earner who’s maxed out retirement accounts like a 401(k) and IRA, then whole life insurance might suit your needs.
You like the comfort of extra savings
Whether you want to treat your life insurance policy as a cash asset or are looking for a policy that offers guaranteed returns on cash value, whole life insurance can function as a financial safety net.
You’re a special-needs parent
Parents of special needs children and young adults may prefer whole life policies that guarantee lifelong coverage to support dependents.
You want to provide for estate taxes
If you’re wealthy, you might need a whole life insurance policy to help your heirs pay estate taxes. In 2026, the federal estate tax threshold is $15 million, according to the Internal Revenue Service.
» MORE: Term vs. whole life insurance
How to find the right whole life insurance policy
Whole life insurance isn’t a cheap commitment, so make sure you research each of the following items and compare policies before buying.
1. Choose the right amount of coverage
To find out how much life insurance you need, first decide what you want the policy to accomplish. A relatively small policy — $10,000, for example — may pay for a funeral. But you’ll need more if you have other priorities, such as funding a trust for a child.
How would you like to estimate your needs?
Quick and basic
Sometimes, a quick ballpark estimate is all you need to get started. You can always come back and work it out in more detail later.
Detailed
You can get the most accurate picture of your life insurance needs by taking a detailed look at your assets, expenses, debts and goals.
2. Examine riders
Life insurance riders are coverage you can add to a life insurance policy. Depending on the policy, they’re either included in the policy or can be purchased at an extra cost.
Examples include an accelerated death benefit or chronic illness rider, which lets you access some of the death benefit if you develop a chronic health condition or become terminally ill. Another add-on to consider is a waiver of premium rider, which lets you skip payments if you become disabled.
Types and costs of riders vary by insurance company, so make sure the policy quote includes the riders you want.
3. Look at the rate of return on cash value
With whole life insurance, part of your premium is added to your cash value, which can grow slowly on a tax-deferred basis. You can borrow against the cash value or surrender the policy for the cash once the policy has been in effect for a while. The death benefit may be reduced if you don’t repay a loan, and it doesn't pay out if you surrender the policy.
Whole life policies guarantee a minimum growth rate on the cash value. If you bought a policy with a mutual life insurance company, it might also earn dividends, which are portions of the insurer’s financial surplus. Life insurance dividends generally aren’t guaranteed, but they’re worth considering when you compare policies.
🤓Nerdy Tip
Life insurance companies sometimes give projections of how each policy’s cash value could perform. These are known as life insurance illustrations. Always ask which parts of the projection are guaranteed.4. Be aware of surrender charges
Whole life insurance policies typically have a surrender charge for the first 10-15 years. This means if you decide to cancel or cash in your policy early, you’ll need to pay a fee. The surrender charge is usually a percentage of the cash value you’ve accumulated. In the early years, this fee may be close to 100%. The surrender charge decreases each year until it no longer applies.
5. Understand the approval process
There are three main types of approval processes for whole life insurance:
Fully underwritten whole life insurance
This kind of policy typically involves filling out a lengthy application and taking a life insurance medical exam.
Simplified issue whole life insurance
An application for this type of policy involves answering some health questions, but there’s no medical exam.
Guaranteed issue whole life insurance
Guaranteed issue means you’ll be accepted with no medical exam and no health questions. These policies are typically only available to people over 50.
Even if you have health issues, you’ll generally find the most competitive price with a fully underwritten policy.
Simplified issue and guaranteed issue life insurance policies are worth considering if you’ve been turned down for standard whole life coverage due to health problems, but be aware of the downsides. Death benefits on these policies are relatively small, and premiums can be expensive when compared with fully underwritten insurance.
In addition, these policies usually don’t pay the full death benefit if you die of natural causes or suicide within the first few years of coverage. This is known as the “waiting period” in policy documents, so always be sure to read the fine print.
6. Compare whole life insurance quotes
When you’re shopping for life insurance, get life insurance quotes for the same amount of coverage from several insurers to compare prices. You might find that rates for whole life insurance vary widely.
7. Check the insurer’s financial strength
Look up the financial strength rating of each whole life insurer you’re considering. You can find financial information through rating firms such as AM Best. Financial strength is important because a strong company has a better chance of being around decades from now to pay claims. NerdWallet typically recommends insurers with ratings of A- or higher.
8. Research the insurer’s reputation for customer service
You can see an insurer’s complaint index score on the National Association of Insurance Commissioners website. The score is based on the number of complaints filed against the insurance company in each state, adjusted for the company’s market share (based on premiums written). The average is 1, so a score higher than 1 means the company received more complaints than expected for its size.
Alternatives to whole life insurance
Before committing to the higher costs of whole life insurance, consider whether one of these policies might meet your needs.
Term life ⏳
Whole life insurance fits the bill for some people, but term life insurance is sufficient for most families.
While these policies have no cash value and expire when the term is over, they typically have much lower premiums than whole life insurance.
» MORE: Best term life insurance
Guaranteed universal life🛡️
Guaranteed universal life (GUL) policies combine features of term and permanent life insurance.
GUL can last a lifetime with fixed rates of cash value growth. It isn’t as cheap as term life, but it’s more affordable than whole life insurance.
» MORE: GUL insurance
Other options
Another alternative to whole life insurance is universal life insurance. These policies usually last your entire life and give flexibility to adjust your premiums and life insurance death benefit amount. But this type of insurance can be more complicated to manage and isn't a good fit for most life insurance needs.
» MORE: Best life insurance companies
Frequently Asked Questions
Does a whole life insurance policy pay out a guaranteed amount at death?
Yes. When you take out a whole life policy, the insurer will specify a level or guaranteed premium that won’t change and a guaranteed death benefit amount to be paid upon your death. This amount will not decrease and is paid to either you or your beneficiaries at the age specified in the policy (usually 100 or older).
What age is the best time to buy whole life insurance?
Like other types of life insurance, it’s best to buy a whole life insurance policy when you’re young and relatively healthy because premiums are usually cheaper. However, the cost of whole life insurance may make it difficult to afford for younger adults on a budget.
What’s the cash value of a $10,000 whole life insurance policy?
The cash value of a whole life insurance policy depends on several factors, including when you surrender or cash out the policy. In general, if you want to surrender a whole life policy that has accumulated $10,000 in cash value, you can expect to receive the full $10,000 amount minus any early surrender fees.
Article sources
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- 1.Internal Revenue Service (IRS). Estate Tax: Filing threshold for year of death. Accessed Sep 15, 2026.
