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Is Whole Life Insurance Worth the Investment?

Choosing between whole life insurance and term life insurance can be complex. While both policies include a death benefit, they can have many different features, and there’s not always a simple way to see which type of coverage plan is right for you.

Although whole life premiums are significantly more expensive than comparable term policies, whole life insurance also turns a portion of your premium payments into cash value, which you can then borrow against or even use to earn dividends.

Still, this arrangement isn’t always the right choice for every life insurance buyer. Below we answer some questions to help you understand if a whole life insurance policy is a sound investment.

How does whole life insurance build cash value?

When you pay premiums on your whole life insurance plan, a portion of that money goes towards your death benefit, and another portion goes towards building cash value for your policy.

Not only will each premium payment build your policy’s cash value, but it can also earn interest over time, just like a savings account.

How can you use whole life insurance cash value?

A feature of whole life insurance policies is that you can withdraw from or borrow against the cash value you’ve saved.

There are no strings attached to how you use this money, so a whole life insurance policy can also act like a savings account to tap into in case of emergencies.

Cash value withdrawals are usually tax-free, provided the withdrawal amount does not exceed the premiums that you’ve paid.

However, withdrawals from the cash value of a policy will reduce the death benefit paid to your beneficiaries.  If you pass away without repaying the cash value, the amount you withdrew will be deducted from the death benefit.

Whole life insurance vs. term life

Cost

On average, term life policies offer lower premiums and more flexibility than comparable whole life policies offer.

Generally, the premium costs of either whole or term policies will be lower the younger you are when you purchase.

Cash Value 

Term life insurance policies make sense for a first-time policyholder who is looking for a straightforward life insurance policy that features a death benefit.

For policyholders interested in building an insurance plan that can also function as a savings account, whole life insurance offers more flexibility through the cash value component.

Length of Coverage

Term life insurance policies will payout a death benefit only if the policyholder dies within the term (which is usually between 10 and 30 years).

Provided premium payments are up-to-date, whole life insurance will never expire.

Medical Exams

Generally, term life policies may offer a no-medical-exam option or require a limited medical questionnaire. While most whole life polices require a medical exam, Fidelity Life offers whole life insurance policies without a medical exam.

Pros & cons of buying whole life insurance

The Pros of Whole Life Insurance

When viewed as an investment opportunity, whole life insurance plans can be a consistent way to contribute premiums towards a maturing cash value, as well as your death benefit.

Lifetime coverage

Unlike a term life policy that typically expires after 10 to 30 years, a whole life insurance policy lasts as long as premiums are kept up-to-date.

Cash value

While a part of your whole life insurance premiums will go towards your death benefit, another part of your premiums will build a cash value. That cash value can be withdrawn from or borrowed, offering a bit of flexibility through your premium contribution.

The Cons of Whole Life Insurance

Compared with investments, whole life insurance does not typically provide the same level of returns as 401(k) or IRA options.

Cost vs. term life

When looking at comparable insurance policies of both term and whole life, whole life usually requires significantly higher premiums.

Medical exams often required

Unlike most whole life insurance policies that require a medical exam, Fidelity Life’s RAPIDecision Senior Whole Life policy does not require a medical exam.

Permanent life insurance alternatives to whole life insurance

While whole life is usually the most popular type of permanent life insurance, there are additional policy types that can also meet the needs of someone looking for lifelong insurance.

Final Expense Insurance

Final expense life insurance is a form of permanent life insurance meant for customers above the age of 50. Seniors can get this policy with either limited or no medical examination. Final expense policies tend to have a lower maximum death benefit than other forms of permanent insurance.

Universal Life Insurance

While whole life insurance includes a fixed premium cost for the life of the policy, universal life insurance can allow you to adjust either your premium contributions or your death benefit coverage.

This flexibility can also incur extra fees as policies, cash value, or premiums fluctuate.

Guaranteed Issue Life Insurance

Guaranteed issue life insurance is a form of permanent insurance that does not require a medical exam.

This coverage can be a good option for policyholders between the ages of 50 and 80 with health conditions that keep them from qualifying for other types of life insurance policies.

Will your whole life policy be worth the premiums you pay?

While whole life policy premiums will likely be more expensive than comparable term life options, remember that whole life premiums go towards an increasing cash value that never expires.

If you already have money going towards put into savings, putting those funds into a whole life policy helps to build a legacy through the death benefit while accruing cash value that grows with interest.

Whole life insurance ensures that your premiums are put towards a guaranteed value, whether through the death benefit or via cash value, that will never expire as long as you continue to pay your premiums.

To learn how Fidelity Life’s whole life insurance policies work, read about our permanent life insurance options.

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