What is a whole life insurance policy?

Life insurance policies come in two primary types: permanent life and term life. The most popular is term life, primarily because it is typically less expensive. However, your policy eventually expires with term life insurance – either at the end of a set period (the "term") or when you reach a maximum age limit. At that point, you must either get a new policy at a higher rate — if possible — or go without protection.

Unlike term life, permanent life insurance does not expire. It's designed to cover you for your entire life. As long as you pay the premiums and don't cancel your policy, the policy will pay a death benefit.1 There are several kinds of permanent coverage, but whole life insurance is the simplest and most popular. While the premium is more expensive than for term life insurance, the list of whole life insurance advantages is significant:

  • Your whole life premium stays the same for life. The fixed premium of a term insurance policy typically ends after 10, 20, or 30 years. And with some other types of permanent coverage, the premium cost can go up later. But with whole life, the premium you pay when you take out your policy never increases. The younger and healthier you are when you take out your whole life coverage, the lower your rates will generally be – for life.
  • You build cash value at a guaranteed rate.2 A whole life policy has a tax-deferred cash value that grows at a guaranteed rate every year3
  • Your death benefit is guaranteed. With some other forms of permanent life insurance, the death benefit may vary based on how well the policy's market investments and cash value fare. With whole life, your policy is guaranteed to pay out at least the face value.
  • You may receive dividends.4 If you purchase whole life insurance from a mutual company, like Guardian, you may also receive dividends. Mutuals are owned by their policyholders, so annual profits can be redistributed as dividends each year that there is a profit. That has consistently been the case with Guardian policies, and those dividends can be distributed as cash, used to pay premiums, or reinvested in your existing whole life policy.

How does whole life compare to other kinds of permanent coverage?

Whole life insurance is the most popular and straightforward type of permanent policy, but it is not the only permanent option.  

Universal life insurance, also called UL, is a type of permanent life policy that offers more flexibility than whole life but fewer guarantees.5 Unlike whole life, universal life premiums are variable, allowing you to raise or lower your payments within certain limits.6 This can make the advantages of permanent life insurance more easily attainable. However, universal life insurance offers fewer guarantees: minimum premium payments can eventually reduce cash value growth and erode its value. This can result in a need to pay more money in later years to keep the same level of coverage or death benefit. However, with sufficient funding, the cash value is guaranteed to grow at a specified minimum interest rate with tax benefits. Depending on the insurance company's investing performance or market interest rates, it can also grow faster. However, universal policies are not likely to earn dividends, even when issued by a mutual company. Other types of universal life insurance policies are available which can provide even more cash growth potential, albeit with fewer guarantees.

Indexed universal life policies, also known as IUL, tie cash value growth to the performance of an index, such as the S&P 500, with caps for minimum and maximum rates of return7. For example, in a year where the index is up 20%, your money may only see a 10%-12% gain. Conversely, if your chosen index is negative for the year, your cash value may stay the same or even grow slightly (depending on the specific terms of the indexed policy). Each insurance company has its own selection of indices available, and you may be able to choose more than one. You may also be able to allocate a portion of your cash value to a fixed-rate interest account.

Guaranteed universal life policies, also called GUL, offer little or no cash value. Instead of providing cash value growth, this policy is structured to provide permanent coverage with lower premiums than whole life insurance. In many respects, it acts like a term policy that ends at the maturity date, i.e., when the policyholder turns a specific age (typically 100 or older). This type of policy is not suitable for building wealth.

Variable universal life insurance policies, also referred to as VUL, give you the option to tie cash value growth to grouped investment sub-accounts.With these policies, the insurance company gives you the same asset, performance history, and fee information that a brokerage would, and you have to choose how much to invest in each option. However, unlike with whole life, your cash value can actually decrease if the funds you select do poorly.

Finally, as mentioned earlier, term life insurance is a popular form of life insurance, but there is no cash value, and it does not provide permanent coverage. Term life only lasts for a specified amount of time (or "term"), although many policies can be converted to a permanent policy at some point before they expire. You are only paying for life insurance with no wealth-building component, so the cost can be significantly lower than whole life.

Pros and cons of whole life insurance at a glance

Pro Con
Permanent protection that lasts your entire life Significantly more expensive than term life
Premiums never increase Best to take out when younger for more affordable premiums
The death benefit will not decrease Your protection needs may change as your life changes
Builds tax-deferred cash value at a guaranteed rate Cash value may grow at a slower pace than some other permanent policies
May pay dividends (if purchased from a mutual insurer) Requires paying higher premiums compared to term
Cash can be borrowed without a credit check9 Loans against the policy are charged interest
You can withdraw money from your policy You may have to pay taxes on money withdrawn from the policy
One of the simplest forms of permanent insurance More complex than term life

Is whole life insurance worth the cost?

Like any other financial product, whole life has advantages and disadvantages, along with some unique features. It provides permanent coverage, guaranteed premiums that don't increase, has guaranteed cash values, a guaranteed death benefit, and offers possible dividends. However, it is typically more expensive than most other policies, and the cash value growth may be more limited than other permanent policies depending on the performance.

Whether whole life insurance is worth it depends on your life situation and goals. If you want protection that lasts your entire life, then a whole life policy from a reputable provider can be an option to consider for your needs. It can also be worthwhile for older people concerned about estate planning strategies and reducing the effects of taxes on their heirs.

To learn more, you can contact Guardian. We’ll help you find a nearby financial professional who will take the time to learn about your unique situation, listen to your concerns, and clearly explain the different insurance options that best fit your needs and your budget.

Frequently asked questions about whole life insurance

What is the downside of whole life insurance?

Compared to a term life policy, a whole life policy is more expensive and complex, in part because it's designed to provide a death benefit that lasts a lifetime. On the other hand, a whole life insurance policy can be a powerful and highly customized asset that provides tax advantages, financial protection, and numerous guarantees and benefits. It can complement your 401k or other savings, but it's not suitable for everyone – before buying, you need to understand how it works and what it can do, then work with a knowledgeable insurance broker or agent to ensure you get the right policy for your needs.

Why do people choose whole life insurance?

Whole life insurance builds cash value, provides permanent coverage, and can help build your family's wealth over the long term. These policies also offer more guarantees than other types of coverage, making them an option to consider for many people.

Find a financial professional near you
Go now


This article is for informational purposes only. Guardian may not offer all products discussed. Please consult with a financial professional to understand what life insurance products are available for sale.

1 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

2 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

3 Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

4 Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors.

Permanent life insurance consists of two types: whole life and universal life. Cash value grows in a participating whole life policy through dividends, which are declared annually by the company's board of directors and are not guaranteed. Cash value grows in a universal life policy through credited interest and decreased insurance costs. The cash value of both policy types benefits when the policyholder pays an amount above the required premium.

6 Universal Life Insurance may lapse prematurely due to inadequate funding (low or no premium), increase in cost of insurance rates as the insured grows older, and a low interest crediting rate. This does not apply to universal life policies which have a secondary guarantee, but if the secondary guarantee requirements are not met the policy will most likely lapse.

7 An Indexed Universal Life (IUL) policy is not considered a security. Premium and death benefit types are flexible. It’s crediting rate is based on the performance of a stock index with a cap rate (i.e. 10%), a floor (i.e. 0%), and a participation rate (i.e., 100%). This type of universal life policy may lapse due to low or negative performance of the stock index, inadequate funding, and increasing cost of insurance rates

S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results.

8 A Variable Universal Life (VUL) policy is considered both life insurance and a security and is sold with a prospectus. Premium and death benefit types are flexible. It’s crediting rate is based on the performance of the underlying investment options provided in the policy. There is no guaranteed interest rate. This type of policy may lapse due to low or negative performance of the underlying investment options, inadequate funding, and increasing cost of insurance rates. See your policy prospectus for more information

9 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

2022-143720 20240930