I started Insurance Blog by Chris™ because I have a passion for insurance. Here at the blog, our job is to educate and inform people about the best insurance for them. Since then, we have grown into national brands with a large team of researchers helping people understand all forms of insurance.

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Written by Chris Huntley
Founder of Huntley Wealth & Insurance Services Chris Huntley

Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insu...

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Reviewed by Rachael Brennan
Licensed Insurance Agent Rachael Brennan

UPDATED: Mar 24, 2021

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People looking for lifelong life insurance coverage should consider permanent life insurance.

There are a few different variations, including whole and variable life insurance.

Both of these have an extra component: an investment account referred to as a cash value. Separate from the death benefit, this cash value grows over time and can provide an array of advantages throughout the policy holder’s lifetime.

Policies with cash values are treated not only as safety nets but as long-range investments. While whole and variable life insurance provide some similar features such as lifelong coverage, they’re actually very different.

Table of Contents:

What is Whole Life Insurance?

Whole life insurance is a type of permanent insurance. In fact, it’s widely considered the best type of permanent life insurance out there.

If you’re covered under whole life insurance, your designated beneficiaries will receive the death benefit outlined in your policy upon your passing. As long as you continue to pay your monthly premiums, which will stay at a fixed rate throughout your lifetime, your coverage will continue.

Unlike term life insurance, whole life insurance doesn’t expire after a certain amount of time.

Whole life insurance is notoriously more expensive than term life insurance, but not without cause. Every month, part of your premium goes toward building the policy’s cash value. This is a tax-deferred sum of money that will continue to grow at a steady rate over the life of the policy.

It’s sometimes possible to convert a term life policy to a whole life policy — fully or partially — with a term conversion rider. However, many insurance companies set a deadline for when this transition can take place.

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What is Variable Life Insurance?

Variable life insurance is another type of permanent life insurance. It includes both the death benefit and a cash value, but policyholders can choose their investment options.

A policy’s cash value operates like a brokerage account that can be invested in various securities like stocks, bonds, and mutual funds.

Unlike whole life insurance, the U.S. Securities and Exchange Commission (SEC) treats variable life insurance policies as regulated investments.

They may result in substantial rewards, but they also pose significant financial risks. If you’re interested in enrolling in a variable life insurance policy, speak with a financial advisor.

What are the Key Similarities and Differences?

Like all forms of permanent life insurance, whole and variable life insurance policies cover policyholders for life — or for as long as they continue to pay the premiums.

Due to the cash value components to both types of life insurance of coverage, some policyholders use them as emergency savings, while others use them as investments.

In simple terms, a whole life insurance policy offers more of a stable savings approach, while a variable life policy offers the potential risks and rewards of an investment.

If whole life policies are “low risk, low reward,” variable life policies are “high risk, (potentially) high reward.”

Cash Value

Both whole and life insurance policies include cash value components. These are tax-deferred, meaning you won’t have to pay taxes on the contributions or gains while they live within your account.

Once the cash value reaches a certain amount, policyholders can take out a policy loan on the cash value, use it as collateral against an outside loan, treat it as an emergency fund and make withdrawals if necessary, or use it to pay the actual loan premiums.

Depending on your provider, you may be eligible to receive annual dividends. If you choose to surrender or give up your coverage, you’d get your cash value back, although fees will apply.

By default, the cash value gets absorbed by the insurance provider upon the policyholder’s death. You can, however, include a rider in your policy that ensures your beneficiaries receive both the death benefit and the cash value, although this will result in a steeper premium.

Rate of Return

Because of the nature of these investments, a variable life insurance policy’s cash value may see high or low rates of return, depending on market performance.

If a cash value performs well, a policyholder might use it to boost their death benefit. But if it performs poorly, the insurance company might lower the death benefit or raise your monthly premium accordingly.

In some cases, there may be a cap on the rate of return, so a good year might not make up for a bad year. Check to see whether the death benefit is guaranteed if you’re interested in taking on a variable life policy.

More conservative investors and people looking for a guaranteed rate of return with no risk to their death benefit should consider whole life insurance instead. The higher fees associated with variable life insurance policies only make sense for those who aim for higher returns.

Additionally, since the cash value components take quite a few years to show significant returns, elderly individuals won’t be able to get as much value out of a shorter-term permanent life policy.

Monthly Premiums

Whole life insurance is much more expensive than term life insurance, and variable life insurance can be more costly than whole life coverage.

This is what the average American pays each month for a $250,000 whole life policy, depending on their gender and the age that they enrolled:

Age Female Male
30 $179 $200
40 $253 $298
50 $384 $462
60 $628 $759

By comparison, the average 30-year-old pays about $11 to $13 per month for a 20-year term life insurance policy.

As a small minority of people pay into variable life insurance policies, averages are harder to come by. But premiums can be higher than those for whole life coverage.

Plus, there are separate fees for each investment within the policy’s cash value.

If you’re interested in learning more about the costs and potential benefits, speak with a financial advisor to make certain that this type of plan would be a sound investing strategy.

Who Can Benefit Most From These Policies?

Following the loss of a loved one, the combination of emotional grief and financial instability can be catastrophic for many families. Nine out of ten families would get more value from term life insurance policies. So, who is the one in ten who may benefit from a permanent life insurance policy?

Whole life insurance may be advantageous for:

  • Parents and caregivers who provide financial support to loved ones who require lifelong care due to disabilities or chronic illnesses
  • People in their 60s who have missed the cutoff for a term policy but would like coverage for the rest of their lives
  • People who have maxed out their retirement contributions and seek the low-risk nature of a whole life plan

Variable life insurance policies would be advantages for:

  • High-net-worth individuals who are looking to expand their investment portfolio and estate planning strategy
  • People who have maxed out their retirement contributions and seek the risks and potential rewards of a variable life plan

The cash value components to both types of life insurance are unique in that they are tax-deferred. For people who have already made the maximum contributions to other tax-deferred investment vehicles like 401k or Individual Retirement Account (IRA) accounts, a permanent life insurance policy may be appealing due to the tax advantages.

Oftentimes, insurance brokers try to upsell customers on whole life policies even when term life coverage would be a better value. Thrillseekers who engage in high-risk activities for work or recreation, parents with young children and lots of debt, and people caring for elderly parents might often expect that whole life insurance would be advantageous.

In these types of cases, it could be smarter to choose an extended term that covers the period of time you’re worried about. You could choose a policy that expires after your debt is paid off, after your children become adults, or after your elderly parents pass away. If you aren’t sure whether a whole or term life insurance policy would be right for you, speak with a financial advisor for clarity.

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How Can I Find a Policy?

The life insurance marketplace is a competitive one; brokers want your business, and many will try to offer competitive rates, especially to young people who pose lower risks.

Keep in mind that different providers calculate risks in different ways. For instance, one insurance company might see diabetes as a risky preexisting condition. But another might consider diabetic individuals less risky as they follow healthier lifestyles to keep their blood sugar levels in check. Don’t be surprised if your medical history, age, and lifestyle habits have different effects on different policies.

Generally speaking, the best time to get life insurance is now — before you get any older. With permanent life insurance, the younger you sign up, the lower your premiums will stay, which can add up to significant savings over your lifetime.

If you’re interested in a whole life insurance policy, do some comparison shopping and request a few quotes online. If you have questions, feel free to speak with a broker to get some of your questions answered.

If you’re eager to learn more about variable life insurance, speak with a financial advisor to discuss how this type of policy might work in your favor. Take your long-term financial goals and investment portfolio into consideration when deciding on whether a variable life policy is right for you. A financial advisor can help you determine the risks and make a sound decision.

With both types of permanent life insurance, you’ll be required to undergo a medical screening as part of your application.  You can visit a doctor’s office or have a technician visit your home to gather blood and urine samples.

They’ll need to determine your height, weight, age, and blood pressure. You’ll need to disclose your medical history as well. Some applicants may be required to have an electrocardiogram, especially elderly applicants and people predisposed to heart conditions.

Whether you seek whole or variable life coverage, it’s essential to go with a licensed company. You don’t want to become a victim of fraud or lose coverage if the insurance provider goes under. The National Association of Insurance Commissioners warns against fake and fraudulent life insurance policies.

Give your state’s insurance department a call to confirm the legitimacy of the agent or company you’ve been speaking with.