- kate_sept2004/Getty Images
- Life insurance is a type of insurance policy that provides a death benefit when the insured passes away.
- There are different types of life insurance, including term and whole life.
- Whole life insurance covers you forever, while term life has an expiration date. Whole life policies, however, are much more expensive per month than term policies.
- Whole life policies also have a “savings account” element, though experts say you’re better off investing your money or putting it in a high-yield savings account.
- Policygenius can help you find the right life insurance for your needs. Get a quote today »
Life insurance is a type of insurance policy that pays out a death benefit if the insured individual passes away. While that concept is fairly simple, there are different types of life insurance with unique features that you should know about. One popular type of life insurance is called whole life insurance, or whole life.
This insurance provides both a death benefit and builds up a cash value, a type of savings or investment that you may be able to withdraw from your policy.
Whole life insurance is a type of permanent life insurance. That means it doesn’t expire or go away on a specific date, a common feature of term life insurance.
What is whole life insurance?
Whole life insurance is a form of permanent life insurance you can use to build assets while also protecting your family from a sudden loss of income. This dual purpose makes whole life attractive to people who want life insurance but don’t want it to go away when they change jobs or a term ends.
However, the monthly premiums for whole life insurance tend to be much higher than term life insurance. With term life insurance, you are just paying for a potential future death benefit. If you outlive a term life insurance policy, you typically don’t get anything back. With whole life, you are also paying into a type of savings with every premium payment.
Whole life insurance premiums are fixed when you sign up for the policy. The premiums and death benefit don’t change as long as your policy is active.
Need life insurance? Our partner Policygenius can help find the right policy for you »
As your policy builds a bigger cash value, you can withdraw funds or take out a loan from your policy. There are many good reasons to do this, but remember that if you withdraw now you won’t have those assets in the future.
Some households use whole life insurance as a form of retirement savings. Accessing those savings early can wipe out your balance.
If you keep adding to your balance with regular premium payments, you will earn a rate of return on your policy. Similar to a savings account or investment account, whole life insurance policies grow in value as you earn interest.
Should you get whole life insurance?
While this all looks good on the surface, you may not want to rush out and get whole life. Some money experts argue that you’ll do much better getting a term life insurance policy and choosing a different type of investment account for saving and investment purposes. The higher monthly payment for whole life makes it expensive compared to term life, though the benefits are different.
While premiums will vary based on your age and health, Logan Sachon, insurance editor at Policygenius, says whole life insurance premiums are typically six to 10 times higher than term life premiums.
Whole life insurance makes sense for some people, but you should also look at term life insurance, which costs less per month but doesn’t include an investment.
Universal life is another alternative to whole life, as it includes a permanent cash value feature but gives you more flexibility to change your premiums or death benefit should you need to in the future.
But one thing is certain, if anyone relies on you and your income, you should seriously look at life insurance. If you were to pass away unexpectedly, life insurance could help keep your family in the same home and cover bills like groceries and utilities.
It would be a shame for your family to lose their quality of living due to a worst-case scenario for you, but illnesses, injuries, car accidents, and other tragedies happen every day. Protecting your loved ones is what life insurance is all about, whole life included.