What Is Whole Life Insurance?

Whole life insurance provides coverage throughout the life of the insured person. In addition to paying a tax-free death benefit, whole life insurance also contains a savings component in which cash value may accumulate. Interest accrues on a tax-deferred basis.

Whole life insurance policies are one of several types of permanent life insurance, meaning they cover you for your entire life. Universal life, indexed universal life, and variable universal life are others. You can choose a whole life insurance policy that works for you.

How Does It Work?

Whole life insurance guarantees payment of a death benefit to beneficiaries in exchange for level, regularly-due premium payments. The policy includes a savings portion called the “cash value” alongside the death benefit. In the savings component, interest may accumulate on a tax-deferred basis. Growing cash value is an essential component of whole life insurance.

To build cash value, a policyholder can often remit payments greater than the scheduled premium to purchase extra coverage (known as paid-up additions or PUAs). Policy dividends can also be reinvested into the cash value and earn interest. Over time, the dividends and interest earned on the policy's cash value will provide a positive return to investors, potentially growing larger than the total amount of premiums paid into the policy.

The cash value offers a living benefit to the policyholder, meaning they can access it while the insured is still alive. To access cash reserves, the policyholder requests a withdrawal of funds or a tax-free loan.

Key Features


Most whole life policies feature level premiums, meaning the amount you pay every month won’t change.

Cash Accumulation

The cash value of a whole life policy typically earns a fixed rate of interest.

Permanent Protection

Whole Life insurance guarantees coverage no matter the change in health of the insured.

Types of Whole Life Insurance

Whole life insurance offers a variety of coverage options, including Universal Life (UL), Indexed Universal Life (IUL), Variable Universal Life, and Reduced Paid-Up policies, among others.

Whole Life vs Term Life

Coverage Length

Whole Life provides coverage for your entire life, while Term Life covers you for a specific term, such as 10, 20, or 30 years.

Cash Value

Whole Life policies accumulate cash value over time, which can be borrowed against or withdrawn. Term Life policies do not have a cash value component.


Whole Life policies generally have higher premiums compared to Term Life policies, which often offer lower premiums, especially for younger individuals.

Death Benefit

Both types of policies provide a death benefit, but Whole Life policies offer a guaranteed death benefit, whereas Term Life policies only pay out if you pass away during the term of the policy.


Whole Life policies offer less flexibility in terms of premium payments and coverage adjustments compared to Term Life policies, which can be more flexible.

Bottom Line

Whole life insurance generally has a level premium and death benefit, providing a guaranteed benefit upon the death of the insured, regardless of when they die. Part of the premiums you pay for a whole life policy go to a savings component known as the cash value. Those funds are invested with a guaranteed return, and after they’ve grown large enough, you can borrow from or withdraw from the cash value tax-free.

This, and the fact that whole life covers you until death (as long as you pay your premiums), offer clear advantages over term life insurance, which only pays out if death occurs within a specific time frame.

As with any kind of life insurance, a whole life insurance policy gives individuals and their families financial security against the loss of a breadwinner. For families that rely on the income of a single person, a whole life policy can provide financial security against the sudden loss of an income provider.