Guide · Whole life · 2 min read
What is whole life insurance?
Whole life insurance is permanent coverage. It is meant to stay in place for your whole life, as long as the premiums are paid.
Premiums and the death benefit
Premiums on a whole life policy are usually fixed. The contract usually lists a guaranteed death benefit that stays in place while premiums are paid. The premium is typically higher than term for the same amount, because the coverage lasts longer and builds cash value.
Cash value and dividends
Whole life builds cash value on a schedule shown in the contract. Some policies are called participating, and they may pay dividends. Dividends are not guaranteed, and the insurer decides them each year.
You can often borrow against the cash value. Interest is charged, and an unpaid loan reduces the death benefit. A large loan can also cause the policy to lapse.
Final expense and graded benefits
Some whole life policies are sold in smaller amounts as final expense coverage. Simplified issue plans ask a few health questions and skip the exam. Guaranteed issue plans ask no health questions.
Plans like these may use a graded benefit. If death comes from natural causes in the first couple of years, the plan may pay a reduced amount, often the premiums paid plus interest. Check the waiting period in the contract.
What to ask your insurer
- Is the premium fixed for life, and what is the death benefit?
- What does the cash value schedule look like, year by year?
- Is the policy participating? If so, how have dividends been paid in the past?
- What interest rate applies to policy loans, and how does a loan change the death benefit?
- Is there a graded benefit or waiting period?
This guide gives general information and is not advice on your own policy. Your policy contract and the insurer make the final call.