Whole Life Insurance

A permanent life insurance contract that remains inforce
for your whole life as long as premiums are paid.

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About the Contract

All Whole Life insurance (WL) contracts are arranged between the policy owner and the insurance company where the insurance company contractually guarantees to:

  • Pay a certain death benefit upon the death of the insured (no time limit) to the beneficiaries

With a Participating Whole Life Insurance (PWL or PWLI) contract the insurance company must also:

  • Share with policy owners any excess profits the company generates. These profits can be set to increase the amount of insurance and the cash value which grows tax-deferred inside the policy.

Cash Value

WL contracts provide for the build-up of cash value which is like equity in real estate. This makes the policy an asset. Technically, cash value is the portion of the death benefit for which the insurance company has totally covered their risk. Cash value can build very slowly, or very quickly, depending on how the policy is designed.

Access to your cash value is contractually guaranteed to be made available to you as the policy owner through the policy loan and/or surrender provisions. These provisions allow you to collateralize your policy and borrow money from the insurance company (tax-free), OR to surrender paid-up insurance and withdraw the value respectively.

Policy Loans

The policy loan provision of a WL policy guarantees you a relatively liquid source of equity which can be borrowed and self-managed (this is optional). When managed sensibly, you can create more wealth than simply purchasing life insurance. If a policy loan is not managed well, it can end up causing the policy to lapse which could create a tax liability for the owner.i

A loan which is taken from the insurance company against your policy will be subject to interest which should be paid along with premiums. As long as premiums and loan interest are paid according to the contract, your policy is guaranteed to remain inforce and you can use the borrowed money for whatever purpose you desire.

Long-term Growth

When a WL policy is well designed, the Internal Rate of Return (IRR) on guaranteed values can be comparable to the rate of return on a fixed income fund. Projected values which include non-guaranteed dividends can be favorably compared to a more diversified portfolio. Of course, whole life insurance is not an investment but rather an asset. There is no market risk with a Whole Life insurance contract, nor are there any additional taxes or fees on the policy values.ii

The guarantees and growth that come with whole life insurance can be used to build a smarter retirement strategy.


Riders can be added to a basic WL policy to customize your policy and achieve better Cash Value growth, add extra insurance coverage, waive premiums in the event of disability and more.

The Other “Permanent” Life Insurance – Universal Life Insurance

Universal Life insurance (UL) is classified as Permanent insurance along with Whole Life insurance, but UL is actually based on Term insurance and there are many more moving parts and conditions that cannot justify a lifetime contract expectation.
UL comes in various flavors:

  • Plain Universal Life - tied to an interest rate
  • Variable Universal Life - tied to sub-accounts investing in stocks
  • Indexed Universal Life - tracks an index (very popular today)
  • No-lapse Universal Life – more guaranteed than most UL products, but there are usually fine-print conditions where the no-lapse guarantee can be eliminated (least popular)

We do not recommend Universal Life insurance products, because with any form of UL the insurance company is shifting some part of the risk away from the company and back to the policy owner.


It’s best to maximize the guarantees in your permanent life insurance with Whole Life insurance. If you want to invest in the market, you’re probably better off doing it outside your life insurance policy.

A good Whole Life insurance policy can routinely perform better long-term, and is certainly more guaranteed than the popular “Buy Term and Invest the Difference” model or a hybrid Universal Life insurance policy, even though these latter options are promoted by many financial experts.

Depending on your age and health, Whole Life insurance is usually a good financial tool to include in your portfolio.


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(i) If the surrender value of a whole life policy is more than the total premiums paid, the growth would be taxable if the policy lapses.
(ii) Cash Value growth in a whole life insurance policy is tax-deferred. If the policy was canceled, growth beyond premiums paid may be taxable (also see footnote i).