what is the difference between whole life and term life insuranceWhat is whole life insurance and how can be a difficult subject. The subject is complicated, the options are many, and we often feel uncomfortable planning for the end of life. Also, while most people recognize the value of life insurance, many are unaware of how life insurance works and what type is best for them. Whole life insurance is a great option for some people, but you will have many plans to choose from. Read this guide to find out which options are right for you.

What Is Whole Life Insurance And How Does It Work?

Whole life insurance is a permanent insurance policy guaranteed to remain in effect for the life of the insured as long as premiums are paid. When you first apply for coverage, you agree 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 away. You will choose the amount of your coverage and your premium based on various factors such as your age, gender and health. As long as you pay your premiums, your life insurance policy will stay in force and your premiums will not change, even if your health or age changes.

For example, let’s say you buy a whole life insurance policy at age 40. When you buy the policy, the premiums will not change for the life of the policy as long as you pay them. They will be higher than the premiums for a term life insurance policy because its entire useful life is built into the calculation.

Unlike term insurance, whole life policies do not expire. The policy will remain in effect until your death or until you cancel it.

Over time, the premiums you pay on the policy begin to build cash value that can be used under certain conditions. The cash value can be withdrawn in the form of a loan or it can be used to cover your insurance premiums.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 die 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 create cash value. Cash value is generated when premiums are paid – the more premiums paid, the higher the cash value. The main benefit of cash value is that it can be withdrawn in the form of a policy loan.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 you 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 interest are repaid, the full amount of your policy coverage will be paid to your beneficiary. If the loan is not repaid, the death benefit will be reduced by the outstanding balance of the loan. Payment protection insurance for loan and how does it works.

Does Life Insurance Work as an Investment?

Although whole life insurance policies act similar to an investment instrument, because of the cash value they accumulate, you should not use any type of life insurance as an investment. Real investments are highly regulated and have safeguards to protect investors. While life insurance is also highly regulated, its regulations have little to do with the financial sector.

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

What Does Whole Life Insurance Cover?

A whole life insurance covers the entire life of the insured. When you have a whole life insurance policy, you will provide a cash payment to your beneficiaries when you pass away.  Can you have two car insurance policies at the same time?

Costs and Premiums

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 get older, insurance becomes more expensive.

Here is a chart that shows examples of the costs of a whole life insurance policy.

Total life insurance rates for a man


 $ 25,000  $ 50,000 

 $ 100,000

fifty$ 65$ 116

$ 217


$ 80$ 144

$ 276


$ 102$ 182

$ 350

65$ 130$ 234

$ 454


$ 174$ 314

$ 611

75$ 237$ 429

$ 840



 $ 250,000  $ 500,000 

 $ 1MM


$ 531$ 1,057$ 2,101
55$ 678$ 1,351

$ 2,688


$ 865$ 1,725$ 3,436


$ 1,123$ 2,241$ 4,468
70$ 1,518$ 3,031

$ 6,047

75$ 2,090$ 4,176

$ 8,337

Total life insurance rates for a women


 $ 25,000  $ 50,000  $ 100,000 


$ 52$ 92$ 173


$ 65$ 117$ 222


$ 82$ 149

$ 287

65$ 107$ 196

$ 378

70$ 143$ 264

$ 514

75$ 199$ 370

$ 725


$ 250,000$ 500,000

$ 1MM


$ 421$ 837$ 1,661


$ 544$ 1,084$ 2,153


$ 705$ 1,406$ 2,799
65$ 935$ 1,865

$ 3,717

70$ 1,274$ 2,544

$ 5,074

75$ 1,802$ 3,599

$ 7,184

How Whole Life Insurance Works vs. Term Life InsuranceTotal life insurance rates for a woman

When you start researching your life insurance options, you will most likely come across the two main types of life insurance: term life insurance and whole life insurance. Each type of life insurance is defined here and how they work: How to integrate management systems in a company?

How Term Life Insurance works : It is insurance that 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 due to the likelihood that the policyholder will survive the policy. When the policy expires, you need to buy another term and pay higher premiums if you still want to carry on life insurance. What types of life insurance exist – learn more of this.

How Whole Life Insurance Works : This is insurance you buy for the duration of your life. Unlike term insurance, whole life policies do not expire. The policy will remain in effect until your death or until it is canceled. The initial cost of premiums is higher than with term insurance due to the length of the policy. However, some of the premiums you pay accumulate in cash value, which you can use later in life. With whole life insurance, the policy you buy at age 40 stays with you. Whole life insurance is often referred to as “permanent” insurance.

Here is a chart showing the main differences between the two types of policies.

How Whole Life Insurance Works vs. Term life insurance


$ 250,000


$ 421


$ 544


$ 705


$ 935


$ 1,274


$ 1,802


$ 250,000


$ 421


$ 544

Types of Whole Life Insurance

When shopping for whole life insurance, you have a few types to choose from. Here’s a breakdown of the various types of whole life insurance and the features and benefits of each.


A typical whole life insurance policy provides level premiums, which means that your premium will stay the same throughout the life of the policy. It will remain in effect until your death as long as you pay your premiums and build up cash value, which increases the longer you have the policy.

Limited Pay

With this type of policy, you will make premium payments over a specified number of years (10, 15, or 20) and pay for the policy in advance. Doing this eliminates the need to pay premiums for the rest of your life. Instead, you pay your premiums up front and enjoy a premium-free policy in later years.

Single Premium

To buy a single premium policy, you will have to pay a sum of money in exchange for a death benefit. For example, you could pay $ 25,000 for a death benefit of $ 50,000. The more you pay, the higher your death benefit.

Modified Premium

Modified premium life insurance policies allow you to pay lower premiums for the first 5 to 10 years. After that, the premiums will increase. This type of policy is ideal for someone who wants to buy a policy with a high death benefit and knows that they will be in a better position to pay higher premiums in the future.


Some married couples choose a joint life insurance policy called a survivor’s policy. This type of policy insures both spouses and does not pay the death benefit until both of them pass. For parents who worry that their child with special needs will not be cared for after they pass away, a survivorship policy will ensure that the child has the necessary funds. Also, some people use survivorship policies to ensure their adult children have enough money to pay estate taxes once both parents are gone.

Universal Life

A universal life insurance policy is a type of whole life insurance that features flexible premium payments. Payments are based on the cost of insurance, which includes administrative fees, mortality charges, and other charges that keep the policy current. The cost of insurance depends on the age and health of the policy holder. As you get older, the cost of your premiums will increase. Any amount you pay above the cost of the insurance is used to build cash value on the policy. If the cash value grows enough, it can cover the increase in premiums as you get older.

Variable Universal Life

A variable universal life insurance works like a universal life policy with a difference. Instead of a guaranteed cash value, this type of policy uses the cash value portion of the premium and invests it in the market. That means cash value can go up when investments go well, or go down when they don’t.

Participant or Non-Participant

Whole life insurance policies are participatory or non-participatory. If your policy is participating, that means that when the insurance company experiences excess earnings, they pay it to the policyholders in the form of “dividends.” The IRS does not tax these dividends because it sees them as an overpayment on the insurance policy. If a whole life policy does not pay dividends, it is considered a non-participating policy. What is a Compliance Officer?

Final Expense Insurance

One of the most popular types of whole life insurance is called final expense insurance. Commonly known as burial insurance or funeral insurance, final expense plans are specifically designed to help cover end-of-life expenses such as medical bills and burial costs. Insure to get the right insurance.

Final expense policies generally have smaller face amounts, usually less than $ 20,000, because they are intended to cover specific expenses for surviving loved ones. Final expense plans can be more affordable and easier to qualify for than traditional life insurance because the nominal amount is so small.

Funeral Advantage® is a final expense insurance program specifically designed to help cover final expenses such as medical bills and funeral costs. Like everything today, funeral costs are constantly increasing. The average funeral can cost up to $ 9,000 depending on the services you use. Caskets alone can cost thousands of dollars depending on the material used.

Most families are not financially prepared to cover the high cost of final arrangements for their loved ones. That’s what Funeral Advantage is for. Provides a life insurance cash benefit when your family needs it most. Most of our policies range from $ 10,000 to $ 15,000, making them perfect for fixed-income families who are worried about paying for their loved ones’ final arrangements. With Funeral Advantage, you don’t need a medical exam to qualify like most insurance policies. All you have to do is answer a few health questions in a one-page application.

Included with every Funeral Advantage policy is a free membership to the Funeral Consumer Guardian Society® (FCGS). The FCGS will assist your surviving loved ones with the many details that will emerge immediately after your passing. They will help pay for funeral costs to protect your family from overspending.

Whole Life Endorsements

Whole life insurance clauses are features that you can add to certain whole life policies that increase your features and benefits. There are four clauses that you can consider when buying whole life insurance.

  1. Premium Waiver – A premium waiver clause ensures that the policy premium is paid if the policy holder becomes disabled.
  2. Accelerated Death Benefit : If an insured becomes terminally ill and has less than one year to live, the insurance company will pay him a portion of the face value of his insurance policy before he dies. For example, if you have a $ 1 million policy, the insurance company may pay you $ 750,000. Some insurers automatically include this rider on all their policies at no additional charge, so be sure to check yours.
  3. Term Life Clause : If you have a whole life insurance policy and want to increase the death benefit, one way to do this is to add a term life clause. This rider allows you to add a term life insurance policy to your whole life policy and increase the amount of the death benefit for less than what you would have to pay if you increased it on the whole life policy.
  4. Guaranteed Purchase Option Clause – This clause allows you to purchase additional life insurance without having to undergo a medical exam. For example, if a healthy 30-year-old has this endorsement, he can add an additional $ 50,000 in insurance when he turns 60 without a medical exam.

Myths and Misunderstandings About How Life Insurance Works

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

Here are misunderstandings about what life insurance is and how it works that we often encounter:

  • You must be in perfect health to get life insurance . The truth is, you can buy life insurance no matter what type of health you are in. There are many policies that do not ask for guaranteed medical exams and 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 is 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 covers your burial costs and other final expenses, this is an ideal solution. Some people even buy these policies for their older parents to help with costs after they pass away. Be sure to research multiple senior life insurance options before you buy.
  • Term insurance is better than whole life insurance . Many people assume that term insurance is better because it is often cheaper. But the price is only one factor to consider. Term insurance plans may take longer to pay depending on the size of the policy. And if you take out a term policy at 30, but need to renew at 60, your rate will be extremely high.

Frequent questions

How does whole life insurance work when a policy matures?

Most whole life policies are 100 years old. When an insured survives the policy, the insurance company can pay the insured the full cash value (which in this case is equal to the amount of coverage) and close the policy. Others grant an extension to the insured who continues to pay the premiums until they pass. Others still stop charging the premium, but keep the policy active until it is needed.

Can a whole life policy be ‘cash withdrawn’?

Yes. You can hand over the policy and exchange it for the value. You can take a loan against the cash value, which may or may not earn interest, depending on the insurer.

How do I withdraw money from my lifetime policy?

If you choose to withdraw money from your whole life insurance policy, simply contact your insurer to see how much is available, what interest rate will apply (if any), and if you will be taxed on the loan.

How does whole life insurance that is over 100 years old work?

Many whole life insurance policies expire at 100 years. But if you live longer than that, you have a couple of options. For example, if you are under the age of 85, you could trade 1035 for a new policy that will last up to 121 years. And if you are over 90, you can swap 1035 into a deferred annuity with the cash value of your policy. But before you do anything, you should talk to your financial advisor and your insurance agent to help you make the best decision.

Next steps

Each individual or family has different concerns and questions about what type of life insurance is best for them, how much coverage they need, and which policy will best meet their needs and the needs of their loved ones.

At Lincoln Heritage Life Insurance Company®, we specialize in meeting with you to learn what your needs are. We will take the time to understand your situation and help you protect your loved ones.