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What are the benefits of whole life insurance?
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Are whole life insurance premiums tax deductible?
Who should consider whole life insurance?
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Whole life insurance is a type of permanent life insurance , which means the insured person is covered for the duration of their life as long as premiums are paid on time. Permanent life insurance is different than term life insurance , which covers the insured person for a set amount of time (usually between 10 and 30 years).

Whole life insurance is the most common type of permanent life insurance policy that people purchase, according to the Insurance Information Institute (III).

Like most permanent life insurance policies, whole life also offers a savings component called "cash value." Read on to learn more about the benefits of whole life insurance.
Certain aspects of whole life insurance can make it an appealing choice.
In most cases, the premium and death benefit stay constant for the duration of a whole life insurance policy, says the III . A universal life insurance policy , on the other hand, may offer the option to adjust your premiums or death benefit over time.
Because whole life insurance gives you fixed premiums and a fixed death benefit, you won't have to worry about increased premiums as you get older. And, your loved ones will also know how much to expect when your life insurance benefit is paid out after you pass away.
A whole life policy can serve as a source of emergency funds for you if something goes wrong, or you may be able to take out a loan against the policy. That's because a portion of each premium payment you make is funneled into a savings component of the policy called the " cash value ."

Over time, the cash value of your policy increases, and you may have the option to withdraw funds or borrow against it. The rules on how and when you can do this vary by company and policy. Your insurer may also offer guidelines to follow so that you don't inadvertently reduce the policy's death benefit or create a tax burden 1 .
The cost of a whole life insurance policy depends on several factors, including how much coverage you buy and other things.
When it comes to paying your premiums, you'll typically be able to make a fixed annual payment for a whole life insurance policy. Some life insurance companies may also offer the option to pay monthly, quarterly or twice a year. Be aware, however, that paying premiums more frequently than once per year may incur additional fees.
According to the Internal Revenue Service , you cannot deduct premiums you paid for a whole life insurance policy on your tax return.
However, if your beneficiaries receive the death benefit from your policy, they likely would not have to pay federal income taxes on that benefit. However, any interest earned on top of the death benefit will likely be considered taxable income.
So, when might a whole life policy make sense for you? Life Happens says a whole life insurance policy might be a fit for someone who likes predictability over time. This is because whole life insurance offers death benefit guarantees and fixed premiums.
If you're considering a whole life insurance policy, it may be a good idea to talk it over with a local agent . They can help you review the different options before you make any decisions. That way, you can be confident you've chosen the life insurance policy that works best for you and your family.
This content is for informational purposes only and may not be applicable to all situations.
This life insurance information is provided for general consumer educational purposes and is not intended to provide legal, tax or investment advice. Allstate life insurance issued by Direct General Life Insurance Co., 911 Chestnut Street, Orangeburg SC 29115 and American Heritage Life Ins. Co., 1776 American Heritage Life Dr., Jacksonville FL 32224. Life insurance also offered and issued by third party companies not affiliated with Allstate. Each company is solely responsible for the financial obligations accruing under the products it issues. Product guarantees are backed by the financial strength and claims-paying ability of the issuing company.
Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA , SIPC . Main Office: 2920 South 84th Street, Lincoln, NE 68506. 877-525-5727. Check the background of this firm on FINRA's BrokerCheck website ( https://brokercheck.finra.org ).
¹Loans or partial withdrawals can reduce the policy's cash value and death benefit, can increase the possibility of policy lapse and may result in a tax liability. Consult a tax advisor for additional information on the tax treatment of loans or withdrawals from a life insurance policy.

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

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Whole life insurance is one type of permanent life insurance that can provide lifelong coverage. It provides a variety of guarantees, which can be appealing to someone who doesn’t want any guesswork after buying life insurance.
Whole life insurance combines an investment account called “cash value” and an insurance product. As long as you pay the premiums, your beneficiaries can claim the policy’s death benefit when you pass away.
Whole life insurance offers coverage for the rest of your life and includes a cash value component that lets you tap into it while you’re alive.
Whole life insurance offers three kinds of guarantees:
Whole life insurance is more expensive than term life insurance because people with a whole life policy are guaranteed to have a death benefit when they die. Term life insurance, on the other hand, offers level rates for a specific period, such as 20 or 30 years. Term life policies are cheaper than whole life insurance because they offer only coverage, not cash value.
Whole life insurance works by first selecting the amount of coverage that best suits your needs. Once you have a policy, whole life insurance can remain in-force for your lifetime—as long as you continue to pay the premiums. Also, a cash value component will accrue over time.
Part of the premium payments for whole life insurance will accumulate in a cash value account, which grows over time and can be accessed with a policy loan, withdrawal or surrender of the policy.
Similar to a 401(k) or IRA, the money in the cash value account grows tax-free. However, if you take out cash value that includes investment gains, that portion will be taxable.
The accumulation of cash value is the major differentiator between whole life and term life insurance. While actual growth varies by policy, some take decades before the accumulated cash value exceeds the amount of premiums paid. This is because the entire premium does not go to the cash value—only a small portion. The rest goes to paying for the insurance itself and expense charges.
Most whole life policies have a guaranteed return rate at a low percentage, but it’s impossible to know how much your cash value will actually grow. That’s because most insurance companies that sell whole life also offer a “non-guaranteed” return rate of return based on dividends. You can choose to apply your dividends to cash value every year, but you can’t know how much that will amount to over time.
It may take decades for a policyholder’s cash value to exceed what’s paid in premiums.
You can tap into cash value with a withdrawal or a loan, or also by surrendering the policy. If you take a loan, it’s tax-free, and you can pay it back, with interest. There are no taxes as long as your withdrawal is less than the portion of your cash value that’s attributable to premiums you’ve paid. If your withdrawal is greater, you’ll owe taxes on the difference because those are investment gains.
Outstanding loans and withdrawals will both reduce the amount of death benefit paid out if you pass away. That’s not necessarily a bad thing. After all, one of the reasons to buy a whole life insurance policy is to get cash value, so why let the money sit there without ever using it?
You want to be sure that you know all the ramifications of accessing cash value prior to making any decisions.
When you buy a policy, you’ll choose a life insurance beneficiary to receive the death benefit. You don’t have to split the payout equally among beneficiaries. You can designate the percentage for each, such as 75% to Mary and 25% to John.
It’s also a good idea to designate one or more contingent beneficiaries. These folks are like your backup plan in case all the primary beneficiaries are deceased when you pass away.
Designating beneficiaries is an important task, as is keeping your designation up to date with your wishes. The life insurance company is contractually obligated to pay the beneficiaries named on the policy, regardless of what your will says. It’s wise to check once a year to verify your beneficiaries still reflect your wishes.
A major selling point of whole life insurance is that it will be in force until your death, as long as you’ve paid the required premiums.
But here’s a kicker: For most policies, the policy pays out only the death benefit, no matter how much cash value you’ve accumulated. At your death, the cash value reverts to the insurance company. And remember that outstanding loans and past withdrawals from cash value will reduce the payout to your beneficiaries.
Some policies allow you to purchase a rider that gives your beneficiaries both the death benefit and the accumulated cash value. This provision also means you’ll pay higher annual premiums, as the insurance company is on the hook for a larger payout.
While some of the cash value features and the permanent nature of whole life insurance sound appealing, whole life insurance is simply unaffordable for many people.
Many life insurance shoppers look at term life vs. whole insurance costs. It’s never an apples-to-apples comparison because the policies are so different. That said, here are examples of whole life insurance quotes based on a 30-year-old male of average height and weight for $500,000 in coverage.
This cost differential makes whole life insurance far less attractive to many individuals with an insurance need.
Here is a life insurance calculator to help you determine your life insurance need.
The coverage amount you choose will help determine your rate, along with:
With whole life insurance, there are a variety of other features and provisions that can affect costs as well, such as:
With term life insurance, if you no longer have a need for insurance, you can simply stop paying. Once you stop, the policy lapses, and the insurance company will no longer pay any benefit if you pass away.
Whole life insurance isn’t that simple. If you stop paying, the cash value will be used to pay any premiums until the cash value runs out and the policy lapses. But there are alternatives to simply stopping payments.
Options vary depending on your plan but can include the following tactics.
You can simply ask for the cash surrender value to be paid to you. This is the cash value minus any surrender charge. This action ends the insurance policy, so you should only do this if you no longer have a need for insurance, or have new insurance in place.
By taking the surrender value, you’ll have to pay income taxes on any investment gains that were part of the cash value.
If you want a paid-up policy with a smaller death benefit, the life insurance company takes what you’ve already paid in, calculates how large of a death benefit that would provide, and gives you a policy with the lower death benefit amount. This avoids any taxes and leaves you with some life insurance still in place.
The life insurance company takes what you’ve already paid in and converts the policy into a term life policy for the same death benefit. How long the policy lasts depends on how much you’ve paid, how old you are and the company’s current rates for a policy of that size and duration. This is helpful for someone who wants to preserve some life insurance for a short period of time, but no longer has a need for whole life insurance.
You can exchange your policy for a different life insurance policy or for an annuity. This can make sense to avoid taxes on the surrender value or if you realize another whole life policy has substantially better features and you’d prefer to have that policy instead.
Given the expense of whole life insurance and that many people do not need insurance for their entire lives, it is often not the ideal product to purchase. However, there are some specific situations where buying some form of permanent life insurance makes sense. And you might find that a universal life insurance policy is more affordable if lifelong coverage is your main goal.
Funding a trust: Permanent life insurance can be used to fund a trust that will support children after you die.
Paying estate taxes: For those with estates larger than the current estate tax exemption, which is $12.06 million in 2022 , permanent life insurance can make sense to help heirs pay estate taxes after you pass away. Some states have lower estate tax limits , so it may make sense for folks living in those states as well.
Funding a buy-sell agreement: If you’re an owner of a business with a partner, you might consider whole life insurance to fund the purchase of each other’s shares in the business at death.
Below are the biggest sellers of whole life insurance, in alphabetical order. The list is based on annualized premiums for 2020, according to LIMRA, a research group for the financial services industry.
The key differences among whole life, term life and universal life insurance are the length of coverage, the ability to build cash value and the flexibility of premiums and death benefit.
Term life insurance is good for people who want a financial safety net for a specific number of working years, such as the years of paying off a mortgage. You lock in level premiums for the term length, such as 10, 15, 20 or 30 years. A small number of companies even offer 35-year and 40-year term life insurance. There’s no cash value.
Whole life insurance is good for people who want lifelong coverage, premiums that don’t change and a cash value component. Your beneficiary will get a life insurance payout no matter when you die, as long as you’ve paid the premiums needed to keep the policy in force.
Universal life insurance is another type of permanent life insurance. It might be a good fit if you want the ability to tap into the policy’s cash value and the flexibility to adjust premium payments and death benefits as your needs change.
Here are questions and alternatives to help you decide if whole life insurance is right for you.
Whole life insurance is a product that has some uses, but it’s not for everybody. The additional benefits offered by whole life can often be found by using your retirement and investment accounts for gains, in combination with a term life insurance policy.
Before purchasing any insurance policy, be sure to fully understand the options available, and the policies’ various provisions.
Whole life insurance is only one type of permanent life insurance. Other types of permanent life insurance work quite differently from traditional whole life insurance. Other options include:
Whole life makes up one-third of the individual life insurance market as measured by premiums paid, according to LIMRA, an industry-funded research group.
Compare Policies With 8 Leading Insurers
First, determine how much life insurance you need. For example, Forbes Advisor’s free life insurance calculator can help.
Once you have determined the life insurance amount you need, compare life insurance quotes from multiple companies. Life insurance quotes will vary widely among companies. Work with a financial advisor or experienced independent agent to identify the companies likely to offer you the best quotes.
Whole life insurance has riders that you can add to the policies, such as return of premium, waiver of premium, accidental death and long-term care. Some life insurance riders can help you benefit from a whole life policy while you’re still alive, such as a critical illness rider, which lets you take money from your own death benefit if you’re diagnosed with a critical illness.
Adding riders lets you customize a policy, but may also increase the cost.
Yes, if a whole life poli
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