Whole life insurance
Whole life insurance is permanent life insurance meant to stay in force for the insured's lifetime as long as required premiums are paid. It pays a death benefit to named beneficiaries and generally builds cash value. Premiums, guarantees, dividends, loans and surrender charges depend on the policy and state law.
Also called: whole life, permanent life insurance, ordinary life, straight whole life insurance, permanent life
A whole life policy is one you keep for life, so the questions that matter are what it pays, what it costs to keep, and what changes if you borrow from it or stop paying. The death benefit goes to your named beneficiary, and the policy builds cash value you can borrow against or surrender. The NAIC glossary (opens in a new tab) describes whole life as coverage that may be kept in force for a person's entire life, and the policy itself controls the guarantees, charges and values.
How the money works, with an example
A policy loan or a lapse can lower what is ultimately paid, and a short example shows how. Take a $100,000 face amount with a $2,400 annual premium. After 10 years the owner has paid $2,400 × 10 = $24,000. Suppose the policy illustration shows $12,000 of cash value after year 10; that number comes from the policy's own guaranteed or nonguaranteed table, not from a standard whole life amount.
Now the owner borrows $5,000 and the loan builds $300 of interest. The amount deducted from the death benefit is $5,000 + $300 = $5,300, which leaves about $100,000 - $5,300 = $94,700 for a policy that deducts loans and interest from the stated benefit. The beneficiary does not automatically receive the $100,000 plus the $12,000 of cash value, because NAIC (opens in a new tab) says outstanding loans and interest are deducted from the proceeds. Some policies offer a different death-benefit option, so check which one yours uses.
Types of whole life and what each changes
No national standard sets the coverage amount, premium, cash-value schedule, dividend scale or surrender charge. The quote and the illustration give your figures. These are the common variations, as described by NAIC (opens in a new tab) and the New York Department of Financial Services (opens in a new tab):
Hover or tap a row to highlight it.
| Type | What it changes |
|---|---|
| Ordinary level-premium | Premiums generally stay level for life or until cash value matches the face amount |
| Participating | The insurer may declare dividends, which are not guaranteed unless the contract says so |
| Nonparticipating | No dividends; the contract sets the premium, death benefit and guaranteed cash-value schedule |
| Indeterminate-premium | Premiums can change with insurer costs and earnings, up to the policy's stated maximum |
| Limited-payment | Premiums stop sooner while coverage lasts for life, so scheduled premiums are generally higher |
| Single-premium | One lump sum buys lifetime coverage; early surrender charges and tax consequences can apply |
| Interest-sensitive | Policy values or premiums respond to interest rates, within the contract's guarantees |
Riders such as waiver of premium or accidental death change the premium and add benefits, and each rider sets its own triggers and limits. The death benefit can also be paid as a lump sum, installments, interest income or another option the contract lists.
How whole life compares with term and universal life
Term life insurance pays a death benefit for a set period, such as 10, 20 or 30 years. It generally has no cash value and often has lower starting premiums than permanent insurance. Universal life is also permanent, cash-value insurance, but it separates the premium, death-benefit and cash-value pieces so you can change premium payments or death-benefit options, subject to the policy's requirements and the risk of lapse, according to the NAIC Life Insurance Buyer's Guide (opens in a new tab).
Where you meet the term
Whole life insurance belongs to life insurance, not to auto, homeowners, condo, renters, health or pet policies. You will see it on:
- A life insurance quote, illustration, application or proposal.
- The policy information page that lists the policy type, face amount, premium, owner, insured and beneficiaries.
- The insuring agreement that describes the death benefit.
- The premium, cash-value, loan, dividend, surrender and nonforfeiture provisions.
- Riders and endorsements.
- An annual policy statement or a replacement notice.
- A claim letter that discusses the death benefit, policy status or loans.
What Connecticut and New York add
Connecticut's Standard Nonforfeiture Law, Conn. Gen. Stat. § 38a-439 (opens in a new tab), requires covered policies to provide minimum nonforfeiture benefits when premiums stop, including cash surrender values and paid-up benefits. Your policy still sets the options and amounts available to you.
New York changes the process for replacing a policy. New York Insurance Law § 2123 (opens in a new tab) requires replacement transactions to follow regulation, and Regulation 60 (opens in a new tab) requires a signed Definition of Replacement and a Disclosure Statement no later than policy delivery. Under 11 NYCRR § 51.6 (opens in a new tab), a replacement policyholder generally has 60 days to return the new policy for an unconditional refund.
Questions to ask an agent or insurer
Whole life details vary by company, so these questions bring your own figures into view.
- Which parts of the death benefit, premium, cash value, dividend and interest assumptions are guaranteed? Projections and guarantees are different things.
- What happens if I miss a premium, and which nonforfeiture options apply? The policy may offer cash surrender, reduced paid-up insurance or extended-term insurance.
- How would a loan or withdrawal change the death benefit, cash value, interest and risk of lapse? Unpaid loans and interest reduce what is paid.
- Will the beneficiary receive the face amount alone or something more? Cash value is not automatically added to the death benefit.
- Is this a replacement, surrender, reduction or loan on an existing policy, and which notices apply? Replacement can affect guarantees, surrender charges, underwriting and contestability periods, according to the New York DFS consumer FAQ (opens in a new tab).
Frequently asked questions
These short answers cover the questions that come up once you have a policy in hand.
Does whole life insurance last for life?
It is designed to, as long as required premiums are paid and the policy's lapse provisions are followed. If premiums stop, the policy may use a grace period, cash surrender value, reduced paid-up insurance, extended-term insurance, or it may lapse, depending on the contract and state law.
Are whole life dividends guaranteed?
Only if the contract says so. Dividends on participating policies depend on the insurer's financial experience, and they can reduce premiums, buy paid-up additions or accumulate, depending on the policy.
Does cash value grow right away?
Early cash values may be low. Cash value can grow under guaranteed and nonguaranteed provisions, and the illustration's cash-value table shows the amounts for your policy.
Can an interest-sensitive policy cost more later?
It can. Lower credited interest can reduce projected values or raise the amount needed to keep coverage in force, within whatever guarantees the contract provides.