Life Insurance FAQ
What is whole life insurance?
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The short answer
Whole life insurance is a type of permanent life insurance that stays in force for your entire life as long as you pay the premiums. Part of each premium builds cash value that grows at a guaranteed rate and can be borrowed against or withdrawn. It costs several times more than term life because it combines lifelong coverage with a savings component.
How whole life works
You pay a level premium for life, and the policy guarantees a death benefit to your beneficiaries whenever you die. A portion of each payment funds the insurance, while the rest goes into a cash value account that grows on a tax-deferred basis.
The cash value has a guaranteed minimum growth rate, and many policies also pay dividends that can increase it. You can borrow against the cash value, and if you surrender the policy you receive the accumulated value minus any surrender charges.
Whole life vs term
Term life covers you for a set number of years with no cash value and costs far less. Whole life covers you for life and builds savings, which is why it costs several times more per month at the same age and coverage.
Whole life suits people who want permanent coverage, such as for estate planning or lifelong dependents, and who can afford the higher premium. Term is usually the better fit for covering a temporary need like a mortgage or young children.
Is whole life right for you?
Whole life makes sense when you need coverage for life and want a guaranteed savings component. Because the premiums are high, many people combine a smaller whole life policy with a larger term policy. A licensed agent can help you weigh the cost against your goals.
Related questions
Can you borrow against whole life insurance?
Yes. The cash value is available as a loan while the policy stays in force. Loans reduce the death benefit if not repaid, but many people use the cash value as a source of low-cost borrowing.
How much does whole life cost?
Whole life typically costs several times more than term at the same age and coverage because it builds cash value and pays a benefit whenever you die. Exact rates depend on your age, health, and coverage amount.
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