Life insurance can be a difficult topic. The subject is complicated, the options are many, and we often feel uncomfortable planning for the end of life. In addition, while most people recognize the value of life insurance, many are unsure about which type is best for them.

One common question people have is, “What is whole life insurance?” Whole life insurance is worth it for some people, but there are many plans to choose from. Read this guide to learn what choices are right for you, including whole life insurance costs, policies, and benefits.

What is it?

Whole life insurance is a permanent life insurance policy. It’s guaranteed to remain in force for the life of the insured as long as the premiums are paid. When you first apply for coverage, you are agreeing to a contract in which the insurance company promises to pay your beneficiary a certain amount of money – called a death benefit – when you pass. You’ll choose your coverage amount, and your premium will be calculated based on your age, gender, and health. As long as you pay your premiums, your whole life insurance policy will stay in effect and your premiums will remain the same regardless of health or age changes.

For example, let’s say you buy a whole life insurance policy at age 40. When you purchase the policy, the premiums will be locked in for the life of the policy as long as you pay them. They will be higher than the premiums of a term life insurance policy because your entire lifetime is built into the calculation.

Unlike term insurance, whole life policies don’t expire. The policy will stay in effect until you pass or until it is cancelled.

Over time, the premiums you pay into the policy start to generate cash value, which can be used under certain conditions. Cash value can be withdrawn in the form of a loan or it can be used to cover your insurance premiums. All loans must be repaid before you pass or they will be deducted from the policy’s death benefit.

 How Does the Cash Value Benefit Work?

Whole life policies are one of the few life insurance plans that build cash value. What is whole life insurance cash value? It is generated when premiums are paid – the more premiums that have been paid, the more cash value there is. The main benefit of cash value is that it can be withdrawn in the form of a policy loan.

For example, if you have been paying premiums for many years and have an unexpected medical bill or financial obligation, you can call your insurance company and see how much you can withdraw from your policy. As long as the loan and any interest is repaid, your policy’s full coverage amount will be paid out to your beneficiary. If the loan isn’t repaid, the death benefit will be reduced by the outstanding balance of the loan.

While whole life insurance policies act as an investment vehicle of sorts because of the cash value they accrue, you shouldn’t view any type of life insurance as an investment. True investments are heavily regulated and have safeguards in place to protect investors. While life insurance is also heavily regulated, its regulations have little to do with the financial sector.

Rather, you should view whole life insurance as a safeguard that protects your loved ones from experiencing a financial burden when you pass. The death benefit can help ensure they don’t have to dip into their savings or investments to handle your final arrangements.

Whole life covers the entire life of the insured. When you have this policy type, it will provide a cash payout to your beneficiaries when you pass.

 Whole life insurance is more expensive than term life insurance because the insurer is insuring you for your entire life, not just for a term. And as you age, insuring you becomes more expensive. 

As you begin to research your life insurance options, you’ll most likely come across the two main types of life insurance: term vs whole life insurance. Here are their basic definitions:

Term life insurance: This is insurance you buy to cover a specific term, such as 10 or 20 years. These policies do not accumulate cash value. Premiums tend to be lower because of the likelihood that you will outlive the policy. When the policy expires, you must buy another term and pay higher premiums if you still wish to have life insurance.

Whole life insurance: What is whole life insurance policies’ biggest benefit over term? This is insurance you buy for the length of your life. Unlike term insurance, whole life policies don’t expire. The policy will stay in effect until you pass or until it is canceled. The initial cost of premiums is higher than it is with term insurance because of the length of the policy. However, part of the premiums you pay builds up into cash value, which you can use later in life. With whole life insurance, the policy you buy at age 40 remains with you. Whole life insurance is often referred to as “permanent” insurance.

Most people think about buying life insurance at some point in their life, and may have heard some myths and misconceptions that prevent them from doing it.

Here are misconceptions about whole life insurance that we encounter often:

• You have to be in perfect health to get life insurance. The truth is you can purchase life insurance no matter what kind of health you are in. There are plenty of no medical exam policies and guaranteed acceptance plans on the market. There are also policies that only ask health questions on the application.

• Life insurance is too expensive for seniors. While it’s true that a whole life policy with a large death benefit will cost a lot in monthly premiums, you can purchase final expense insurance for a fraction of the cost. If you want a policy that will cover your burial costs and other final expenses, this is an ideal solution. People who purchase life insurance for parents who are aging or in poor health often choose these policies to help with the costs once they pass. Be sure to research multiple providers so you can find the best life insurance for seniors.

• Term insurance is better than whole life insurance. Many people assume term insurance is better because it’s often cheaper. But price is just one factor to consider. Term insurance plans may take longer to pay out depending on the size of the policy. And if you take out a term policy in your 30s, but need to renew in your 60s, your rate will be extremely high.