Whole life insurance

Whole life insurance is a type of permanent life insurance that provides lifelong coverage and builds cash value. Whole life insurance policies guarantee level premiums, death benefits, and cash value accumulation; for example, MassMutual and Northwestern Mutual offer such guarantees.

Insurers structure whole life insurance so that part of each premium funds the death benefit while another part grows the policy’s cash value at a fixed rate, often 2% to 5% annually. Policyholders can borrow against the cash value in their whole life insurance policies with interest rates typically ranging from 4% to 8%, as seen in products from Guardian Life and New York Life.

Whole life insurance differs from term life because it does not expire after a set number of years; for instance, Prudential’s whole life lasts until age 121. The main cost factor for whole life insurance includes higher premiums compared to term coverage; according to LIMRA, annual premiums can be five to fifteen times more than term life for similar death benefits.

Surrendering a whole life insurance policy early usually incurs surrender charges that may last up to 15 years and reduce the available cash value. Dividends from participating whole life insurance policies–offered by companies like Penn Mutual–can increase cash value or reduce premiums but are not guaranteed.

Medical underwriting is required for most whole life insurance applications; typical requirements include bloodwork, urine tests, and medical history review. Tax advantages exist since the cash value growth in whole life insurance is tax-deferred, and beneficiaries receive death benefits income-tax-free under IRS rules, as confirmed by YourInsurance.info.

Common uses for whole life insurance include estate planning, wealth transfer, and business succession–for example, many small business owners use these policies as key-person coverage or buy-sell agreement funding.