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Whole life insurance

Woman playing with kid in bathtub.

Whole life insurance is the simplest form of permanent life insurance coverage and a lasting financial asset. It can be one of the best options for people who want lifelong protection, wealth-building cash value, and the most guarantees available in a life insurance policy.1 But is it right for you? Universal life insurance also provides permanent coverage with the added advantage of flexible premiums – but that flexibility can affect cash value growth and your death benefit.2,3 Term life insurance is typically much less expensive, but it has no cash value, and coverage is temporary. Read on to learn more.

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Why people choose whole life insurance:

Lifetime protection

From the first day the policy is in effect, it provides an income tax-free death benefit to help protect your family's financial wellbeing. 4 But unlike a term policy, your coverage lasts a lifetime – it can't be canceled as long as premiums are paid.

Cash value

Like all permanent policies (and unlike term life), there's a cash value that grows over time and earns interest. 5 You can take out policy loans against it, use it to pay premiums, or even use your policy for money to supplement income in retirement. 6

Dividends

With a mutual company (like Guardian), the cash value of a whole life policy can earn dividends – because policyholders may receive a share of profits. 7 These can increase a policy's value beyond the growth rate guarantee.

Guarantees

The income tax-free death benefit is guaranteed never to decrease. The cash value is guaranteed to grow at a set annual rate. Your monthly or yearly premiums are guaranteed never to change.

Tax advantages

The policy's cash value grows on a tax-deferred basis, so no taxes are owed on current earnings or interest. Also, the benefit is paid income-tax-free to beneficiaries.

A life-long financial asset: How the cash value grows in a whole life policy

All whole life policies have a cash value that is guaranteed to grow – tax-deferred – at a given rate. However, different life insurance companies have different ways of calculating the rate of value growth. Guardian actually offers eight different growth rate options: for example, some of your cash value can be linked to the S&P 500 index.8,9 Whichever method is used, after a few years of guaranteed cash value growth, it can turn into a useful sum of money. You can take a loan against that asset or use it in other ways to help get you through difficult times – or take greater advantage of the good times.

Whole policies from a mutual insurance company (such as Guardian) can also earn an annual dividend – a portion of the company profits. Dividends can increase your cash value beyond the guaranteed growth rate. While policies don't guarantee dividends, Guardian has paid them every year since 1868.

Checklist: Is whole life insurance right for me?

What I want:

What I should get:

I want life-long protection

Whole or universal life

I want to build tax-advantaged cash value

Whole or universal life

I want access to policy cash while I'm alive

Whole or universal life

I want guaranteed cash value growth

Whole life insurance

I want the opportunity to earn added dividends

Whole life insurance

I want the flexibility to raise or lower my premiums

Universal life insurance

I want lower premiums for permanent coverage

Universal life insurance

I want a guaranteed death benefit

Whole or term life

I want guaranteed level premiums

Whole or term life

I want the biggest benefit per premium dollar

Term life insurance

You can also buy a term policy to supplement your whole life coverage.

Some people want extra income protection for a limited time, for example, while their children are still home. Fortunately, it's easy to get term life insurance quotes online, so you can quickly see how affordable it is – either as a supplement for permanent life insurance, or as a standalone policy.

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Your qualified savings include IRAs, 401(k)s and other retirement accounts funded with pre-tax dollars

Generally this is around 10% of your annual income. A good annual savings target is 10% of your salary, gradually increasing this percentage over time.

Generally this is around 70% of your current annual income

How whole life insurance compares to other options

Compared to a term policy:

Whole life insurance policies can cost at least five times more than a term policy with the same amount of coverage. But term policies give you fewer benefits: the protection is temporary, and it doesn't build value because it's pure life insurance. If you just need to protect your family's finances for a limited time, for example, while children are still at home, a term policy can be a good choice. But once the term is over, it has no value – and to continue being protected, you have to apply for a new policy with higher premiums because you're older. In contrast, whole life provides lifelong protection at a consistent cost with a wealth-building component that continually increases value. You or your beneficiaries are also assured of an eventual payout, so you may feel you're getting more value for your premiums.

Many term policies can be converted to whole life.

Many companies (including Guardian) allow conversion without a new health exam for at least part of the term. It can be a smart way to continue your life insurance protection indefinitely and build assets for the future.

Compared to universal life policy:

Whole life is simpler, offers more guarantees – but provides less flexibility. Like whole life, a universal policy provides cash value, but the premiums are variable: you can raise or lower your payments as you see fit, within the policy limits. This can be useful for people with varying incomes. However, paying in less diminishes cash value growth and can eventually result in the need to pay more to keep your policy from lapsing.

Whole vs. Term vs. Universal at a glance

Whole Life Insurance

Term Life Insurance

Universal Life Insurance

Coverage period

Lifetime

Limited to a specific term (typically 10-30 years)

Lifetime

Premiums

Fixed

Usually fixed

Can vary

Build cash value

Yes, with guarantees

No

Yes, without guarantees

Dividends

Yes

No

No

Cost

More expensive than term, often more expensive than universal life

Less costly than whole life or universal life

More expensive than term; but often less than whole life

Income tax-free death benefit

Yes

Yes

Yes

Investment options

Guardian provides options; other companies may or may not

No

Standard – No Variable – Yes

Primary uses

Death benefit; tax-deferred asset accumulation; tax-advantaged wealth preservation and transfer

Death benefit

Death benefit; tax-deferred asset accumulation; tax-advantaged wealth preservation and transfer

How do you get whole life protection, and what does it cost?

Each whole life contract is unique, with a benefit amount and options tailored to the needs of each policy owner (for example, you can get an accelerated death benefit rider to help pay for end-of-life care). Premiums vary widely based on the benefit amount, age, lifestyle, gender, and other factors. Your health also affects rates, and with most policies, you'll have to get a medical exam as part of the application process. In any case, you can expect to typically pay more for whole life than term – but you also get longer-lasting protection with additional financial benefits.

Is it the right choice for you? Consider speaking with a financial professional who will listen to your needs and dig deep to learn more about your needs and goals. They can help you decide how much protection to get and which type of policy (or policies), then guide you through the options that best fit your specific situation. How do you find such an experienced professional? Ask a friend or colleague for a recommendation. Or we can put you in touch with a Guardian financial professional.

Frequently asked questions about whole life insurance

What are the disadvantages of whole life insurance?

Compared to a term policy, any permanent policy type - including whole life - will have significantly higher premium payments for a given benefit level. A whole life contract is also somewhat complex, in part because it's designed to protect you for the rest of your life, and it includes a cash value that can be used as an asset to help fund various life events. Another potential whole life drawback is fixed premiums: people with variable incomes may find it hard to pay them in years when earnings are down. These people should consider a universal life policy with more payment flexibility because the premium can be adjusted up or down within a certain range.

Are whole life insurance policies worth it?

As with other financial products, that depends on the life situation and goals of the person insured. If you want life insurance protection that lasts your entire life, coupled with the financial protection of a cash value component, then a whole life policy from a reputable insurer may fit your needs. It can also be a worthwhile investment for older people concerned about estate planning and minimizing the effects of taxes for their heirs.

What is the best whole life insurance?

It's hard to say which insurer offers the best life insurance for a given person's needs. However, specific policies and contract terms vary in ways that can make a significant difference: for example, Guardian offers more cash value growth options than many other life insurance companies. Underwriting methods are also distinct: Guardian will offer policies to healthy people living with HIV, but other companies may not. In addition to these more subjective criteria, there are objective measures that can help you determine which may be the best life insurance companies to work with:

  • High Financial Strength Ratings (FSRs) - Independent companies rate the financial strength of each life insurance company to ensure their ability to meet obligations. 10

  • High customer satisfaction scores  - There are customer surveys and reviews that can tell you how satisfied others are with a company's services.

  • Low customer complaints  - State regulators and private organizations collect and publish data on customer complaints.

  • Product selection and customization - Some companies focus on term insurance,  while others offer term and whole with a variety of optional riders that tailor a policy to your needs. 11

  • Policyholder dividends - Some insurers – mutual companies – may pay whole life policy dividends, and others don't.

  • Direct underwriting  - Some companies issue their own policies, while others sell policies issued by other companies.

Related articles

  • Term vs. whole life insurance: Which is right for you?
  • Servicemembers’ Group Life Insurance
  • Whole life vs universal life insurance. What are the key similarities and differences?

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 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.

3 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.

4 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.

5 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 professional and refer to your individual whole life policy illustration for more information.

6 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.

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

8 The Index Participation Feature (IPF) is a rider available with select Guardian participating whole life policies. With the new IPF, policyholders can now allocate between 0% and 100% of the cash value of paid-up additions (PUA) to the IPF each year. The IPF provides an adjustment to the dividend paid under the policy. This adjustment, subject to the cap rate (currently 10.5%) and floor (currently 4%), may be positive or negative based on the S&P 500 price return index performance. Adverse market performance can create negative dividend adjustments which may cause lower overall cash values than would otherwise have accrued had the IPF rider not been selected. While the adjustment provided by this rider is affected by the S&P 500 price return index, it does not participate in any stock or equity investment of the S&P 500 price return index.

9 The S&P 500 price return index is a product of S&P Dow Jones Indices LLC (“SPDJI”) and has been licensed for use by The Guardian Life Insurance Company of America (Guardian). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Guardian. The Index Participation Feature (“Product”) is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such Product nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 price return index. The cost of the IPF rider is currently 2% with a guaranteed rate of 3% on the IPF portion of the policy. Policy loans against, or withdrawals of, values allocated to the IPF could negatively impact rider performance. Selection of the IPF may restrict the use of certain dividend options.

10 Financial information concerning Guardian as of December 31, 2021, on a statutory basis: Admitted Assets = $72.1 Billion; Liabilities = $63.5 Billion (including $51.8 Billion of Reserves); and Surplus = $8.6 Billion.

11 Riders may incur an additional cost or premium. Riders may not be available in all states.