Whole life insurance is a permanent policy, which gives you guaranteed protection for your loved ones that lasts a lifetime.
Whole life insurance is a type of permanent life insurance. That is, the coverage and possibly the premiums last for your entire life. As long as your premium payments are made as agreed, your insurance coverage lasts throughout your life, and the death benefit is a guaranteed amount. Your premium payments are a set, level amount that can't be increased. You can choose to make smaller premium payments throughout the life of the policy, larger payments over a shorter period (known as limited pay whole life), or lower premiums in the beginning and higher premiums afterward. In addition, dividends are typically paid on whole life contracts and can be used to either increase the death benefit or reduce the premiums.
When you pay the premiums on a whole life policy, part of each payment accumulates as a cash value. The insurance company typically invests the cash value, which continues to grow tax deferred as long as the policy is in force. You can borrow against the cash value, but unpaid policy loans and interest will be subtracted from your death benefit. You may also access your cash value by surrendering (canceling) the policy. However, if you do this, you'll be left without this insurance coverage.
Note: The cash value is only part of your premium payments. Generally, if you cancel your policy in the first 10 years, you will get back significantly less than your total premiums paid.
Like other types of cash value insurance, whole life is more expensive than term insurance during the early years of your life. But since whole life premiums neither increase as you get older nor are affected as your health deteriorates, it's often a more cost-effective solution if you need insurance coverage to last for the rest of your life. Investment returns on whole life insurance are typically lower than other types of permanent insurance, because the insurance company invests the cash value in extremely conservative vehicles, such as bond funds. If you are seeking the potential for greater investment returns or want more control over your cash value investment decisions, variable life or variable universal life may be a more appropriate choice.