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What Is Whole Life Insurance?

Whole life insurance is a popular insurance package millions of people elect to carry each year. There is no shortage of advertisements for whole life insurance, nor is there a shortage of insurance companies willing to sell this insurance to you.

But what is whole life insurance, and should you carry it? Simply put, whole life insurance is a type of insurance product that pays a death benefit when the insured passes away.

Proper financial planning isn’t just about generating money, it’s also about protecting your assets. Whole life insurance offers a great deal of protection, which is why it’s such a common insurance product. 

How Does Whole Life Insurance Work?

How does whole life insurance work? Without a doubt, this is one of the most common questions an insurance agent will be asked when their clients are considering this insurance product.

Afterall, insurance can be complicated. On a high level, whole life insurance provides a death benefit to the insured beneficiaries when the insured passes away.

There are some stipulations in that statement, such as; the monthly premium must be paid in full and current, and the cause of death was considered insured in accordance with the agreement established with the insurance company.  

What Does Whole Life Insurance Cover?

Another commonly asked question is, what does whole life insurance cover? These policies pay a debt benefit to a beneficiary when the policy holder passes away.

The beneficiary can use this money to cover many life expenses. Such expenses can include, but certainly not limited to:

  • Paying off outstanding debt 
  • Replace lost income from the deceased 
  • Cover the expense of the mortgage 
  • A kids college savings fund 
  • An investment account 

The beneficiary can use the death benefit however they please. Using the money responsibly can reduce financial pressure in their lives. 

At What Age Should I Buy Whole Life Insurance?

The earlier you buy, the better. Whole life insurance will require a medical exam, and coverage can be denied or expensive if the insurance company believes you are a ‘high-risk’ to insure.

Typically, the younger you are, the healthier you are, resulting in being considered a lower risk to insure. Low risk individuals have a higher chance of getting approved for coverage, and their annual premium will likely be cheaper. 

How Much is Whole Life Insurance?

It all comes down to numbers, and that’s no different when it comes to whole life insurance. The price of this insurance may influence you to buy, or avoid, getting coverage. But how much is it going to be exactly?

Unfortunately, there isn’t a clear answer to that question. It can be affordable for some, and expensive for others.

There are many factors that go into the cost. Such factors include your; health, age, gender, hobbies, occupation, alcohol or smoking use/consumption, and your family’s health history.

The insurance underwriters will factor in all of these variables, and many others, to determine how risky you are to insure. The higher the risk, the more you’ll have to pay for insurance. 

Is Whole Life Insurance Worth It?

Understanding if whole life insurance is worth it comes down to numerous variables as well. Generally speaking, if you are married, have a significant other, or have children, this type of insurance is very worth it.

Even if you are in a good spot financially, whole life insurance is helpful. When you pass, the beneficiary will receive a death benefit, and who wouldn’t appreciate extra money? 

Example of Whole Life Insurance

The world of insurance is complicated, but here’s a simple example of a whole life insurance policy, and where it may be helpful.

John S signed up for whole life insurance directly following college graduation. He was 22 years old. At the time of signing up, John was healthy, active, had a corporate job, and his family does not have a history of severe medical issues.

John has a monthly premium of $40/month, and the policy pays a $250,000 death benefit. 

John gets married 5 years later and at 30 years old John welcomes his first child into this world. At 33 years old, John becomes terminally ill. Doctors gave him less than 5 years to live, and at 35 years old, John passed away. 

He leaves behind his widowed wife, his home that was recently purchased, and his child. This is a tragedy that will be difficult for the family to recover from.

However, John’s life insurance policy paid his beneficiary, which is now his widowed wife, $250,000. Although no amount of money in the world will bring John back to life, his widowed wife is able to pay off the house and put money aside for the kids college fund.

This could be one less thing she’ll have to stress about in the absence of her husband. Whole life insurance comes into play in some of life’s toughest times. 

Whole Life Insurance Qualifications

Insurance companies consider numerous variables when qualifying someone for life insurance. Such variables include:

  • Age: One’s age plays a large factor in determining if one qualifies for life insurance. You have a much higher probability of being approved for whole life insurance if you try to sign up for it in your 20’s or 30’s, whereas an insurance company is more likely to deny coverage if you try to sign up in your 70’s. 
  • Health: Your health, and your family health history, plays an important role in determining if you qualify for whole life insurance or not. For instance, if you were diagnosed with a terminal illness, one of your first reactions may be to get whole life insurance. However, insurance companies require a medical exam before issuing coverage, and once they see this condition, they reserve the right to deny coverage. 
  • Riders: Riders are also known as add ons. One can add on specific coverage for an additional cost. A common rider is a long-term care rider. If you have a long-term care rider, your life insurance policy will cover some, or all, of your long-term care expenses. Riders are optional, and contingent on underwritings approval. 
  • Coverage Amount: The coverage amount has an important role in determining if you qualify for whole life insurance, and how much your premium will be for. Simply put, the coverage amount is how much money the insurance company will pay the beneficiary when the insured individual passes away. 
  • Term Length: The term length is how long the policy is in effect for. There are short and long term options. 

Types of Whole Life Insurance

There are numerous types of whole life insurance. Options include:


Guaranteed issue whole life insurance is a type of whole life insurance that does not require a medical exam to qualify. The insurance company is guaranteed to issue coverage, however, there may be a 2-3 year waiting period before the policy is in effect.

The coverage amount is typically lower than a traditional life insurance plan, and the premium may be higher. 


Variable whole life insurance builds cash value. The variable, or variety comes from the numerous investment options that cash accounts can be invested in.

This type of insurance coverage also provides tax incentives. 


Indexed life insurance provides a death benefit and builds a cash value. The cash will be invested in an indexed fund, such as an index of the S&P 500.

This cash account grows tax deferred until the insured reaches retirement age. 

Limited Payment

Limited pay life insurance is when someone wishes to pay their premium in a limited number of years. Coverage can last for life, but one can choose to pay off all premiums in 10, 15, or even 20 years.

If you start this plan in your younger years, you may not need to worry about this insurance payment by the time you reach retirement. 


A joint policy is a type of whole life insurance that covers two individuals. A husband and wife may choose to use a joint insurance policy. 


Modified life insurance has premiums that adjust throughout the years. In the early years of the policy, the premiums tend to be lower than a standard policy, whereas in the later years of the policy, the premiums increase. 

Reduced Paid-up

The reduced paid-up insurance option is when the policy owner wishes to make the policy paid-up in advance. The insurance company reserves the right to reduce the death benefit to the cash value of the policy, but will guarantee this new death benefit will never expire. 


A simplified life insurance policy is when the life insurance can be issued with minimal health questions and underwriting. Similar to guarantee insurance, the coverage amount may be lower than a traditional whole life insurance policy. 

Single Premium

A single premium insurance option, also known as SPL, is when insurance is issued after a lump sum of money is paid for the policy. The insurance company will guarantee a death benefit, which never expires until the insured passes away. 

Whole Life for Children 

Life insurance for children covers the life of a child. Although no parent ever wants to think about this tragedy from occurring, having life insurance on your children is a smart decision and rather affordable. 

How To Buy the Best Whole Life Insurance Policy

If you’ve made up your mind that you want life insurance, how can you buy the best whole life insurance policy? 

Determine How Much Coverage You Require

The first step is to determine how much coverage you require. There isn’t a simple answer here.

You’ll need to look at all your debt, expenses that must be paid in your absence, and various life circumstances. For instance, if you owe $750,000 on your house, and have 4 children that all want to go to college, you may need more coverage than the person who owes $150,000 on their mortgage and no college expenses to worry about. 

Choose the Type of Whole Life Insurance to Purchase

Once you’ve determined how much coverage you’ll need, it’s now time to select which policy is right for you. You may want to take a more traditional route and add on a few riders.

Or, perhaps you need to go with a guaranteed issue, or simplified life insurance option, considering your health history. 

Research Companies & Compare Quotes

There are plenty of insurance companies out there that provide whole life insurance. Each insurance company will have a different cost and underwriting process.

Be sure to price shop and compare quotes. A $15/month savings can certainly add up throughout the life of the insurance! 

Compare Insurer’s Cash Value Interest Rates

The cash value of a life insurance policy has numerous benefits! Be sure to compare what insurance company pays the best interest rate.

This needs to be factored into the monthly cost, but the higher the interest rate is, the quicker your money will generate more interest and cash. 

Inquire About Policy and Rider Options

Riders are great products to add onto your insurance policy. There is a rider for just about every lifestyle! You can often add on a rider for a minimal cost.

In the event a rider was used, such as an accidental death rider, you will be leaving your beneficiary with a greater death benefit. 

Advantages of Whole Life Insurance

There are numerous advantages that comes along with this policy. These include:

  • From a financial standpoint, the death benefit can help keep life ‘normal’ when the insured passes away
  • Policies that grow cash value provide tax deferred benefits
  • Money can be given to charity or non-profit organizations if you do not have a beneficiary to give the death benefit to, or if the death benefit is not needed 
  • The cash value of the policy can be used in retirement 

Disadvantages of Whole Life Insurance

Of course, there are disadvantages too. Commonly debated disadvantages include:

  • The monthly premium could have been invested in an investment that generates a greater return and has more liquidity
  • Many policies provide limited investment control
  • Life insurance can take a long time to build a cash value 
  • If one did not sign up for this insurance option when they were young, the monthly premium can be high 

Whole Life vs Term Life Insurance

The biggest difference between a whole life and term life insurance policy is, a term life insurance policy only covers the policyholder for a specific number of years, whereas a whole life insurance policy covers the policyholder for their entire life.

Term life insurance tends to be the cheapest and provides a generous death benefit. 

Protect Those You Love

Both whole and term life insurance can be insurance that protects those you love. Although whole life insurance does provide cash value and tax benefits, the real value is in the death benefit that your loved ones or beneficiary will receive when you pass away.

This death benefit can be used to cover life expenses, and can provide your beneficiary or family with more financial security. Finding the right insurance option is a smart choice to protect those you love.