Whole life insurance is permanent coverage. As long as premiums are paid, the policy stays in force (active) for your entire life. The contract fixes the premium and guarantees the death benefit. Part of each premium builds cash value, an amount inside the policy that grows on a schedule set by the carrier.
People choose whole life for needs that don't expire. Think of final expenses, or leaving something to a spouse or children whenever you pass. Others use it to cover estate costs. Some lock in a child's or grandchild's insurability, their ability to get coverage later, while they're young and healthy.
Whole life costs more per dollar of coverage than term because it's built to pay a claim eventually. That's why I usually recommend it for a defined permanent need, sized sensibly, rather than as a young family's only policy.
Important to know about whole life insurance
- Guarantees are backed by the claims-paying ability of the issuing insurance company.
- Dividends, where offered, are not guaranteed.
- Policy loans and withdrawals reduce the cash value and death benefit and may cause the policy to lapse.
- This is a general description; the policy controls.