Whole Life Insurance

Whole life insurance builds tax-deferred cash value over the life of your policy. A portion of every premium payment you make goes towards your policy's cash value, which grows at a fixed rate over time. When the cash value grows to a certain amount, you can borrow from your whole life policy or withdraw it and use the funds however you'd like.

You pay the same amount for your policy every month, guaranteed, as long as you don't miss a payment. Ideally, if your income increases over time, the payment amount will become more affordable for you, and your premium will never increase.

Unlike term life, your beneficiaries are guaranteed to receive your policy's death benefit no matter when you pass away. And as long as you pay back any outstanding loans against your policy, your death benefit amount won't change.

Whole life insurance is generally less expensive than other permanent policies. The cost of any life insurance policy will depend on factors like your age, your health (including your life insurance medical exam results), and how much life insurance coverage you need. The insurance company you select can also be a factor, as rates can vary.

A whole life insurance policy will begin building cash value as soon as you pay your first premium, and it will continue building throughout the life of the policy as long as there are funds in the account. However, you're typically required to have the policy for a certain amount of time (usually 2–5 years) before you can borrow from the cash value. Your policy will note those details.

Whole life insurance policies pay out when you pass away as long as the policy is active. However, life insurance policies typically have a contestability period of two years after the policy activates. If you pass away during that period and your insurer finds undisclosed health conditions or other discrepancies in your application, your policy may not pay out. If they don't find any discrepancies, your policy can pay out no matter when you pass away. Find out how long you have to claim a life insurance payout.

Also, whole life insurance policies are typically set to expire and pay out to you (instead of your beneficiaries) if your cash value grows to equal your death benefit amount by the time you're a certain age — usually 100.

Universal life insurance allows you to adjust your premium and death benefit amounts, whereas whole life has a fixed premium payment and death benefit. The cash value of a universal life policy also varies based on market conditions, whereas whole life cash value grows at a fixed interest rate. If you're looking for a straightforward, less risky permanent life policy, then whole life may be the right choice for you.