Whole life insurance: lifelong coverage with level premiums

What whole life insurance is

Whole life insurance is permanent coverage. As long as premiums are paid, it stays in force for your entire life and pays a death benefit to your beneficiaries whenever you die — at 60, 80 or 100. There's no term that runs out.

That's the main difference from term life, which covers you for a set number of years and then ends. Whole life is built for needs that don't go away: final costs, a lifelong dependent, leaving something behind, or simply knowing the coverage will be there.

Level premiums for life

Most whole life policies have a premium that is set when you buy and stays the same for the life of the policy. It doesn't rise as you get older or if your health changes. Some policies are designed so premiums are paid up by a certain age, with coverage continuing afterward.

Because premiums are based on your age and health when you apply, buying earlier usually means a lower level premium for the rest of your life.

Guaranteed cash value that grows slowly

Part of each premium builds cash value inside the policy. In a traditional whole life policy, that cash value grows at a guaranteed rate set in the contract. Growth is slow, especially in the early years, when most of the premium goes toward the cost of coverage and policy expenses.

Over time you may be able to borrow against the cash value or surrender the policy for it. Loans that aren't repaid reduce the death benefit, and surrendering ends the coverage. Some policies may also pay dividends, but dividends are not guaranteed.

Whole life costs much more than term

For the same death benefit, whole life costs much more than term — often many times more. You're paying for coverage that lasts forever plus the cash value component. That's why most families who need a large amount of coverage for a set number of years start with term.

• Whole life fits when: you want coverage that never expires, you want level premiums for life, you have a lifelong dependent, or you've already covered your shorter-term needs.
• Term is better when: you need a large amount of coverage on a budget, your need ends when the kids are grown or the mortgage is paid, or you'd rather save and invest the difference yourself.
• Many people use both: term for the big, temporary needs and a smaller whole life policy for permanent ones.

Final expense insurance: small whole life for final costs

Final expense insurance is a small whole life policy designed to cover a funeral or cremation, final medical bills and smaller debts. It's typically bought between about ages 50 and 85, by people who no longer need a large policy but don't want to leave their family with a bill.

Most final expense policies use simplified health questions — a short list of yes-or-no answers — instead of a medical exam. Your answers decide which kind of plan you qualify for, which is why comparing carriers matters.

• Level benefit: for applicants in reasonably good health. The full benefit is available from the first day the policy is in force.
• Graded benefit: for some health conditions. These plans usually have a 2-year waiting period; if death from natural causes happens during it, the policy pays a limited benefit instead of the full amount.
• Guaranteed issue: guaranteed approval within the eligible ages with no health questions. These plans usually have a 2-year waiting period before the full benefit pays for death from natural causes.

How underwriting works

Larger whole life policies may ask detailed health questions and sometimes request medical records or an exam. Smaller final expense policies usually rely on simplified questions and database checks. Well-managed health conditions don't automatically rule you out.

Questions to ask before you buy

• Is the premium level for life, or paid up by a certain age?
• What is the guaranteed cash value schedule, and what isn't guaranteed?
• Is there a waiting period before the full benefit pays?
• Could term life plus savings meet the same need for less?