Can I Withdraw Money From My Whole Life Life Insurance

Term vs. whole life insurance: Which is right for you

If the distinction between term and permanent life insurance like whole life seems a little vague to you, you're not alone. While most people know that life insurance will pay a sum of money to their beneficiaries if they pass away, they may not be able to explain the differences and benefits of term life insurance vs. whole life insurance. But if you want to protect your family's financial future, it's important to know the basics about these two options.

What is term life insurance?

A term life insurance policy is exactly what the name implies: It's a policy that provides coverage for a specific term or period of time, typically between 10 and 30 years. It is sometimes called "pure life insurance" because unlike whole life insurance, there's no cash value component to the policy – it's designed purely to give your beneficiaries a payout if you pass away during the term.

If you get a term policy to protect your family, you should think about whether your family's need for life insurance will change before the time the term expires. For most people that means the kids are grown up and on their own, the house is paid off, and there's some money that can serve as a safety net for the surviving spouse.

What is whole life insurance?

A whole life policy is the simplest form of permanent life insurance, so named because it provides coverage that lasts your entire life as long as premiums are paid. Unlike term, it's not a "pure life insurance" product because it includes a cash value component. A policy has cash value when a portion of your premium dollars are invested and this sum grows over time on a tax-deferred basis, so you don't pay taxes on the gains.

A policy's cash value provides a number of benefits that you can use while you're still alive. It takes a few years to grow into a useful amount, but once that happens you can borrow money against your policy's cash value in the form of loans or withdrawals¹, use it to pay your premiums, or even surrender it for cash to supplement you in retirement.

While there are other types of permanent life insurance, whole life is the simplest:

The premium remains the same for life
The death benefit is guaranteed
The cash value grows at a guaranteed rate

Note that with some companies, such as Guardian, whole life policies can also earn annual dividends (a portion of the insurer's profits) that can increase your cash value and provide other benefits. While not guaranteed, Guardian has paid dividends to participating individual life policyholders every year since 1868².

What are the pro and cons of term life vs. whole life?

The biggest difference between the two types of policies is that while both pay a death benefit to your beneficiaries, whole life also provides permanent (lifelong) coverage with a cash value component. That added value – along with the certainty that the insurer will eventually have to pay a death benefit – means that a whole life policy premium is higher than for a term policy. Here are some of the other features and differences between the two types of policies:

Policy feature	Term life insurance	Whole life insurance
Initial premium	Low	Typically, higher than term insurance
Premium over time	May remain the same or increase over time	Guaranteed to remain the same
Permanent coverage	No	Yes
Length of coverage	Typically, 10-30 years. If you buy through work, coverage can be up to a termination age	Lifetime coverage (as long as payments are made)
Health exam required	In most cases, but depends on the amount taken out	Yes
Cash value	No	Yes – accumulates over time
Eligible for company dividends	No	Yes – depending on the company
Ability to withdraw cash value during life of the policy	No cash value	Yes – withdrawals and loans are allowed (but if unrepaid, this will diminish the death benefit)
Guaranteed death benefit	Yes	Yes
Used for estate planning	Not typically	Yes
Accelerated death benefit	Yes	Yes

What to consider before you buy a whole or term-life policy

Every person is unique, and the decision to buy a whole vs. a term policy should be guided by your specific situation in life and the things that matter to you, including (but not limited to) such things as:

How old are you?
How good is your health?
What are your family's financial needs?
What are the ages of your children?
Are you concerned about long-term health expenses and serious illness?
What is the amount of your mortgage and other debts?
What are your plans for retirement?
What college plans do you have for your children?
How will you pay for funeral expenses?
Are you concerned about estate planning and tax ramifications?
Are you setting up a trust as part of your will?
Do you want to leave part of your estate to charity?
Do you have existing life insurance, perhaps through your employer?

Because even though there will be a large cost difference between a term policy and a whole life policy at first, when you consider all the benefits that a whole policy can provide over the course of your life – and the certainty of an eventual payout – you may feel it's a better overall value.

How much will each kind of policy cost me?

Many factors contribute to the cost of life insurance policy – some you can't control, but others you can. By learning what impacts your premiums before you get a life insurance policy quote, you can better understand your options when choosing what's best for you and your family.

Your policy type (term or permanent), age, health, gender, driving record, occupation, hobbies, and the amount your loved ones would receive all contribute to the cost.

Read more about the cost of life insurance.

What if you already have one type of policy, but want another?

We've talked about the different options and features that a whole life policy provides compared to a term policy, as well as the fact that a term policy can be a more cost-effective way to purchase a given level of death benefit. But no matter which kind of policy you have, you may be able to get the benefits of the other type. How?

You may be able to convert your term policy into a whole life policy. Most companies (but not all) allow for this, and it can be an excellent way to continue your life insurance policy and build cash value from which you can borrow.
You can also buy a term policy to supplement your whole life policy. For example, if you feel you want an added level of protection to supplement payment for your children's college as your whole life policy is building cash value.

After all is said and done, which type of policy should I buy?

The truth is there are a lot of things to consider in addition to the type of policy you get. How much coverage do you need? What are all the different policy options (or riders)? Is there other coverage I need to protect my family?

Here's an easy way to get answers to all those questions: Just contact Guardian to find a financial professional who will take the time to learn about your unique situation, listen to your concerns, and clearly explain the different insurance options that best fit your needs and your budget – from a company that's been helping protect families for over 150 years.

If you are an employee, taking advantage of your benefits at work is a smart and affordable way to get the financial protection you want for yourself and your family. Contact your HR department to review your plan details and determine how much life insurance is available to you. Your employer may provide life insurance as a benefit, or you may opt to pay for additional life insurance through payroll deductions.

Frequently asked questions about term vs. whole life insurance

Is whole life better than term life insurance?

Whole life provides many benefits compared to a term life policy: it is permanent, it has a cash value investment component, and it provides more ways to protect your family's finances over the long term. Those features make it a better choice for many people – but if you're only looking for the biggest death benefit you can get per dollar paid in premiums, then term life insurance may be a better choice.

Are whole life insurance policies worth it?

As with any other financial services product, that depends on your life situation and goals. If you want life insurance protection that lasts your entire life, then a whole life policy from a solid provider is a great choice for 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 happens to term life insurance at the end of the term?

Generally speaking, when a term life policy comes to the end of its term (or effective period) you either have to buy another policy (at a higher cost) or go without life insurance. One exception: If you have a term policy with a guaranteed renewal clause, that will allow you to renew at the end of your term on a year-by-year basis, typically at a far higher rate. While expensive, it can be worthwhile if your health has declined or you are otherwise uninsurable.

Are whole life and term life insurance policies taxable?

In general, the payout from a life insurance policy after a death of the insured is not taxed, but always consult your tax professional to get all the details on tax advantages.