Whole Life Insurance

Whole life combines a death benefit that lasts your entire life with a savings component called cash value. Part of each premium pays for the insurance, part covers commissions and expenses, and the remainder accumulates at a rate the insurer sets, growing tax-deferred.

The premium difference is the fact that governs every decision here. Whole life commonly costs five to fifteen times what the same death benefit costs as term coverage. That gap is the money that would otherwise be available to invest, which is why the standard advice is to buy term and invest the difference.

Cash value builds slowly and expensively. Early years go largely to commissions, so surrendering in the first decade often returns less than was paid in, and surrender charges apply for years. Borrowing against the cash value is possible but accrues interest, and an unpaid loan reduces the death benefit.

The most jarring feature is what happens at death: with most traditional policies the beneficiaries receive the death benefit and the cash value stays with the insurer. You are not leaving both behind.

It has legitimate uses — funding estate taxes on an illiquid estate, providing for a dependent with lifelong needs, or covering someone uninsurable by other means. It is a poor default. Because commissions on these policies are large, it is worth confirming whether the person recommending one is a fiduciary.