Including a life insurance policy in your comprehensive financial plan can be wise. Your life insurance will give your surviving family members a death benefit in the event of your passing. They can use the fund to cover living expenses, settle debts, or pay for your final expenses.

What is Whole Life Insurance?

The coverage provided by whole life insurance policies lasts for the policyholder’s entire life span. If all premiums are current, coverage will remain in effect. Your life insurance beneficiary will receive a payment from the policy in the form of a death benefit when you pass away.

Whole life insurance premiums will not change over time. On top of that, a portion of your payments goes into an interest-bearing cash value account.

The cash value portion grows tax-deferred at a guaranteed rate of return. You can borrow or withdraw funds from the cash value. You can cancel your whole life insurance policy and receive the “surrender value,” which is the cash value less any surrender charges.

The average current dividend interest crediting rate for permanent life insurance is 4.65%.

Is Whole Life Insurance a Viable Investment?

It is incorrect to think of whole life insurance as an “investment” vehicle. Investing has always been about striking a balance between taking risks and reaping the rewards. The initial premium payments you make go primarily toward the death benefit and partially toward policy administration. Your premiums will gradually be shifted into a more extensive cash value account as time goes on. 

Most whole life insurance sellers are mutual insurers that pay dividends, which you can deposit into your cash value account regularly. The longer you contribute to the policy, the more cash value you can accumulate over time.

The steady increase in the value of a whole life insurance policy’s cash value makes it a less volatile investment than some other types of policies. Whole life insurance cash value grows annually, is tax-free, and is unaffected by market volatility, unlike other investments.

On the other hand, if you only need life insurance to provide a death benefit, whole life insurance is not a good investment. Generally, universal life insurance can provide a death benefit at a lower cost.

The Benefits and Drawbacks of Using Whole Life Insurance as an Investment

Whole life insurance can have both benefits and drawbacks. Here’s a quick rundown of the main advantages and disadvantages.


  • Whole life insurance generates tax-free cash value.
  • Future premiums can be paid with the accumulated cash value.
  • In the absence of other financial resources, it offers the ability to borrow against a policy’s cash value or withdraw from it.


  • As a result of your passing, your beneficiaries will not be able to access the cash value. No matter how much money is saved up, they will get the total face value of the policy. Cash value is paid to the insurance company.
  • Before a substantial cash value is accumulated, it may take several years of premium payments.
  • Whole-life policies may underperform when compared to the returns available from other investments.
  • Withdrawing money or taking out a policy loan and not repaying it reduces the death benefit paid out when you pass away.

When is Whole Life Insurance an Unsuitable Investment?

While whole life insurance has advantages, it is probably not the best option if you fit any of the following descriptions:

  • Life insurance is something you’ll only ever need temporarily. If you only need life insurance for ten, twenty, or thirty years, paying higher premiums for whole life insurance is probably not worth it. 
  • Whole life insurance appeals to people with a low-risk tolerance or who want a safe, guaranteed way to accumulate cash value.
  • You want to control your investments. With no investment options, whole life insurance provides a fixed rate of return on cash value. You will not benefit from the stock market’s potential highs.
  • You desire a higher rate of return: The interest and dividends paid out by a whole-life policy may lag far behind the returns available elsewhere.

Whole life insurance also requires patience, as the cash value can take some time to accumulate. Those seeking market-beating returns or who need short-term liquidity may want to consider other savings and investment options.

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