Why Is Whole Life Insurance More Expensive? 
Whole Life -LRB- AKA , Ordinary Life -RRB- is more expensive because the insurance company is accepting a higher risk to provide the guarantees of contract . There are primarily two types of whole life contracts that guarantee both the face amount -LRB- death benefit -RRB- to the beneficiary and the internal tax-favored build up of cash values . Participating whole life offers the insured the opportunity to `` participate '' in the financial success of the underwriting carrier by providing the possibility of receiving a dividend at the end of each policy year . Dividends are not guaranteed and while they are presented as a percent -LRB- example : 5.2 % credited dividend rate -RRB- , they are not the same as simple interest . It involves a formula that takes into account the cash values in the in force policy along with the investment returns and claims experience of the insurance company in any given year . The policy owner can direct the company to use the dividend in any one of four to six ways , depending on the carrier . All but one of those options will not produce an incometax event . -LRB- Taking the dividend as cash , however , will . -RRB- Most whole life policyowners either choose to have the dividend purchase paid up additions of insurance -LRB- increasing the death benefit as well as the cash value of the policy -RRB- or to reduce premium with excess to purchase paid up additions . Non-participating whole life or interest-sensitive whole life does not pay a dividend . But , it most likely does provide some level of a guaranteed death benefit and guaranteed cash values . Some whole life policies now provide the opportunity to over-pay the guaranteed level premium for a period of time to turbo-charge the growth of the cash value which grows tax-deferred . This requires the addition of a paid-up additions rider -LRB- PUAR -RRB- and there are limitations on how much over-payment one can make . This capability has been touted by some financial planners as a way of being your own bank because access to and repayment of cash value loans are tax-favored . One avoids a lengthy wait for approval that a bank would need to approve a loan , as well . -LRB- Go to Amazon.com and search `` be your own bank '' for more details . -RRB- In the current unstable economic environment we are in , whole life hasexperienced a comeback in sales due to the safety and security of this type of insurance contract with tax-deferred inside build up of cash values producing rates of return higher than other fixed interest financial vehicles . However , some analysts minimizethose perceived advantages because historically market returns exceed cash value build up , and there can be dire consequences to the policy if cash values are not managed prudently . Reckless use of taking loans can result in the death benefit being greatly reduced or cause the policy to lapse with little or no value . Whole life is not suitable in all circumstances calling for the application of a life insurance policy . Those seeking direction and guidance should consult with an experienced insurance professional or knowledgeable Certified Financial Planner or other advising professional before purchasing any life insurance contract . 