Whole life insurance

Whole life is permanent life insurance. You pay a premium set by the contract. If you keep paying, the death benefit stays in force for your life, not for a term that runs out. The policy also builds cash value on a guaranteed schedule printed by the carrier.

Some policies are participating: they may pay a dividend. A dividend is not a guarantee. The guarantee is the premium, the death benefit, and the cash-value table in the contract. Anything above that is extra.

Level term buys a large death benefit for a period and then stops. Whole life buys a death benefit that does not stop, and it costs more per dollar of benefit because the carrier expects to pay it. You are not being overcharged for the same thing. You are buying a different thing.

Use term for the mortgage and the years of earned income. Use whole life when someone will still need the money whether you die at 60 or at 90. Many files need both. One product trying to do both jobs is how people end up with too little of either.

Cash value is an asset inside the policy. You can borrow against it, or surrender the policy and take it, under the contract’s rules. A loan accrues interest. An unpaid loan, plus interest, reduces what is paid at death. It is not a checking account, and it is not the reason to buy the policy if what you needed was a large death benefit for twenty years.

The cash value grows tax-deferred. Accessing it the wrong way — a large surrender, or a policy that lapses with a loan — can create a tax bill. That is a CPA conversation before you take the money out, not after.

A lifelong dependent. An estate that needs cash whenever the second death happens, not only during a term. A burial and last expenses that should not depend on the market. A buy-sell or key-person need that will still exist late in life. A person who wants a guaranteed, boring complement to invested assets and will actually pay the premium for decades.

It is a poor first purchase for a 35-year-old whose real risk is a 20-year income gap and who can only fund one contract. In that file, term does the job. Whole life can be added when the permanent need is real and the premium fits.

Because the insurer is pricing a claim it expects to pay, plus a savings component it guarantees. Term can be inexpensive precisely because most terms expire without a claim. Comparing a 20-year term premium to a whole life premium and calling one a rip-off is a comparison of two different promises.

This page does not print sample rates. Age, health, tobacco, the amount, the state, and whether the policy is paid for life or for a shorter premium period all move the number. The whole life quote is the number. An illustration that assumes dividends will make the policy cheaper than the guarantee is not the guarantee.

The guaranteed premium, the guaranteed death benefit, and the guaranteed cash-value table. Then the dividend column, clearly labeled as not guaranteed. Then loans, surrender charges, and what happens if you stop paying. If the only page anyone shows you is the non-guaranteed illustration, ask for the guarantee.

Also ask what happens if you already own a policy. Replacing whole life to buy a new whole life can restart the contestability period and can forfeit cash value or a favorable older guarantee. Sometimes replacement is right. Often it is not.