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Understand how life insurance works

How Does Whole Life Insurance Work?

family discussing how does whole life insurance work

You may already have a general idea of what life insurance is. But do you understand the different types? Did you know there are other benefits outside of just providing for your loved ones in the event of your death? Each type of life insurance is unique and understanding them and how they work can help you select the best coverage for you.

What is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance that can provide income to your loved ones in the event of your death. But it can also offer benefits while you’re living. For instance, whole life insurance can build cash value that you can use.

Example: If you have an emergency, you can draw on the policy as a financial resource.

It’s important to keep in mind that if you use any of the cash value your policy builds, the benefit paid to your loved ones in the event of your death is reduced.

Whole life policies feature premiums that are fixed, meaning they won’t increase. Whole life is unique from term-life insurance because it is designed to cover you for life, not just a period of time. So now that you know what it is, how does whole life insurance work?

How You Can Use Whole Life Insurance

The following steps break down how whole life insurance works – from purchasing a policy to using it.

  1. Decide how much life insurance you need.
    • This is an easier task than it may initially seem. You can use a life insurance calculator to help you get an understanding of how much life insurance coverage you may need.
  2. Apply for your life insurance policy.
    • You can do this by talking to an agent/producer or completing an online application.
    • If your application is complete, you meet all eligibility requirements and underwriting has approved your application, your policy will be issued to you.
  3. Sit back and wait.
    • Over time, your policy builds cash value. It grows tax-deferred, meaning you won’t pay taxes on the growth.* Don’t forget that using the cash value your policy builds will lower the payout to your loved ones in the event of your death.
  4. In the event of your death, your policy amount is paid to your loved ones.
    • Choosing a reputable company is extremely important. Remember, the payout of your policy is based on the insurer’s ability to pay.

Whole life insurance might be a strategy if you:

  • Are interested in covering final expenses.
    • Whole life insurance is a way to ensure that your loved ones are not left with large expenses when you die. The death benefit can be used to help cover outstanding debts or medical and funeral expenses.
  • Want life insurance coverage that offers benefits while you are living.
    • The cash value built from whole life insurance is accessible, meaning that you could use the cash for needs that might come up for you or your loved ones.**
  • Want to leave a financial legacy for a loved one.
    • The death benefit your loved ones receive from your life insurance policy can be used however they wish.
    • Another way to leave a financial legacy with whole life insurance is purchasing  a whole life policy for a child or grandchild. It can often be inexpensive and you can pay the premiums for your child or grandchild while the cash value builds for their future.

Life insurance is ultimately about providing for the people you care about the most. There is no one-size-fits-all solution, so it’s important to weigh your options because a whole life insurance policy initially has more expensive premiums than term life insurance. If a whole life insurance policy doesn’t seem like the right option, maybe a term-life or Universal Life insurance policy could fit your needs. Talk to an agent/producer or get a quote to see if whole life insurance could be a strategy for you!


* Consult with a professional tax and/or legal advisor before taking any action that may have tax or legal consequences.
** The amount that may be available through loans/withdrawal is defined in the contract. Any policy loans and loan interest and withdrawals will reduce policy values and benefits.

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