Whole Life Insurance

Mitch Ramsbotham

Financial Expert Updated on June 20, 2023

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With a whole life insurance policy, you can be sure that you have permanent, fixed benefits when the time comes to make a claim. But with these types of life insurance even still available in Australia, they are a rare – but beneficial – policy.

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When most people think of life insurance needs, they often consider insurance cover upon death or terminal illness for their whole lives. However, with the most common life insurance policies in Australia now being term life insurance, this is not the case. 

Whole life insurance policies have a number of benefits – including lifetime cover – that many Australians would find extremely valuable. However, there are very few of these policies still floating around in the Australian market as they have been unavailable for purchase since 1992.

Term life insurance is far more common. Term life insurance typically offers a fixed amount of coverage payable in case of death or terminal illness.

This guide discusses what whole life insurance is and the advantages and disadvantages of these solutions.

Additionally, we also discuss why these policies no longer exist, how this affects those who still currently hold whole life insurance policies today, and what insurance alternatives are available for purchase in Australia today.

What Is Whole Life Insurance?

Whole life insurance, or whole of life insurance, is often regarded as the simplest form of life insurance. It is a type of permanent life insurance policy that covers an individual for their whole life. 

This means that as long as the insured individuals continue to pay their premiums, they have lifetime coverage. However, policyholders could also choose to terminate their policy by surrendering the death benefit and collecting the cash value instead.

Whole life insurance is generally no longer available in Australia and has been replaced by other forms of permanent life insurance including term life insurance.

However, some Australians still hold a valid whole life insurance policy. For their existing life insurance policy to still be valid, it needed to be put in place before 1992.

Prior to the introduction of compulsory superannuation in Australia, whole life insurance was a popular form of permanent life insurance and was often used as a retirement savings vehicle.

Common Features of Whole Life Insurance

Whole life insurance policies are characterised by the following common features:

  • Lifelong protection, unless the policy is cancelled
  • Level premiums that don’t increase with age
  • A guaranteed death benefit
  • Guaranteed earnings (at a certain rate) that will increase the cash value each year
  • The possibility of dividend earnings, which can be withdrawn or used to increase the cash value of the policy or reduce premiums.

Costs of Whole Life Insurance

The price of whole life insurance premiums is generally more expensive than other types of life insurance policies. A whole life policy can cost up to 15 times more than a term policy.

Whole life premiums are generally based on:

  • Age
  • Health factors
  • Employment

The amount of life insurance cover that you choose will also affect your premium payment. For instance, if a person has a high amount of coverage, their life insurance cost will be higher than if they have a lower amount.

How Can I Get Whole Life Insurance?

In Australia, whole life policies are no longer available.

Whole life insurance is still popular around the world, but it has largely disappeared from the Australian market.

Ever since the Australian government introduced compulsory superannuation in 1992, whole life insurance cover has been largely replaced with term insurance.

Instead of whole life insurance, you can explore other insurance solutions.

Getting good financial advice on your financial situation and reading the policy’s PDS will help you understand the right insurance option and life insurer for you and your family.

Why Is Whole Life Insurance No Longer Available?

Whole life insurance no longer exists in Australia due to the Federal Government introducing the compulsory superannuation scheme into Australia and the introduction of compulsory super contributions from employers.

Whole life policies were often used as a combination of life insurance and an investment vehicle (especially for retirement savings). Since superannuation takes that role now, whole life insurance has been replaced by term life insurance offers.

History of Whole Life Insurance

Whole life insurance is considered the original life insurance or traditional life insurance. It was popular in the 1970s and 1980s.

Parents often took out these policies upon the births of their children as a way to effectively set their children up with some long-term savings and life plans to be utilised later in life. 

Prior to the introduction of compulsory superannuation in Australia, whole life insurance was a popular form of permanent life insurance and was often used as a retirement savings vehicle as in the 1970s and 1980s, there was no superannuation. Australians only put in place the current Superannuation Scheme today in 1992.

However, some Australians still hold a valid whole life insurance policy. For their existing life insurance policy to still be valid, it needed to be put in place before 1992.

Advantages of Whole Life Insurance

It may seem redundant to discuss the advantages and disadvantages of whole life insurance as these policies can no longer be purchased in Australia.

For those Australians who do hold whole life insurance policies, they must be aware of what their policy involves. 

Whole life insurance has many features and advantages that distinguish it from other universal types of life insurance. These include:

  • Lifelong protection unless the policy is cancelled
  • Level insurance premiums that don’t increase with age or circumstance make budgeting easier
  • A guaranteed death benefit payment
  • There is a possibility of dividend earnings, which can be withdrawn and utilised as an income stream or invested back into the cash benefit of the policy
  • A portion of the premium paid would be placed in a savings account, usually managed by the insurer. It would grow at a guaranteed rate over time (cash value)
  • The withdrawal clause in the majority of whole life insurance plans enables the policyholder to take a part of the cash value or discontinue coverage in exchange for surrender charges
  • Whole life insurance policies provide a guaranteed minimum payout regardless of the cover holder’s life expectancy

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Disadvantages of Whole Life Insurance

The obvious disadvantage of whole life insurance policies is that it is no longer available in Australia.

The other main disadvantage is that the rate has higher premium payments and can be extremely expensive.  

Special Considerations

If you hold a whole life policy, here are some considerations to think about:\

  • The death benefit is a set amount typically included in the contract of a life insurance policy. It can be increased by purchasing additional death benefits, which are not taxed.
  • Aside from the usual factors that affect the death benefit amount, such as outstanding loans, it can also be affected by various policy provisions.
  • Some additional death benefits include the waiver of premium riders and the accidental death benefit. These are usually added to life insurance policies to protect the insured from being unable to pay premiums.
  • Some policies enable the policyholder to set up an account instead of receiving a lump payout.

Cash Value Accumulation

One of the biggest differences that set a whole life insurance policy apart from what we currently have in place today is that whole life insurance also contains a cash savings component, where a cash value accumulates over the life of the policy. 

Whole life insurance features a savings component, in which cash value may build, and a death benefit. Interest is compounded tax-deferred.

​​When interest rates are low, the cash value of whole life insurance tends to build up at a very slow pace.

Note that policyholders can ask for a withdrawal or for policy loans to access financial reserves. Loans carry interest, which varies by insurance. Tax-free withdrawals are allowed up to the entire premiums paid. Unpaid debts diminish the death benefit.

Variable Whole Life Insurance and Type of Premium

Variable insurance, like whole life, offers lifetime protection with set premiums and cash value. Unless lapsed or terminated, this insurance covers the insured for their whole life. Annual premiums are paid to keep the coverage active. 

If policy owners do not require long-term life insurance and do not want to take investment risks, variable whole life insurance may not be the right policy for them.

What Is the Difference Between Whole Life Insurance and Term Life Insurance or “Life Cover”?

It’s important to choose the right insurance options for you and your family.

Policy owners may do extensive research on all prospective insurers to guarantee they are among the top life insurance companies presently operating.

Australians have access to various extremely cost-effective life insurance options today—the most common being term life insurance. 

Term life insurance provides a lump-sum payment to your nominated beneficiaries, such as your children or spouse. This cover is paid out upon your death or in circumstances where you are diagnosed as being terminally ill. 

Term life insurance is a policy that lasts for a certain period of time. Term life insurance does not cover the insured person for his entire life, unlike whole life insurance.

In contrast to whole life insurance, term life insurance provides coverage for a certain period, as specified by the policyholder when the policy is purchased.

Modified Life Insurance Premiums

Similarly to term life insurance and whole life insurance, which, as their names suggest, provide insurance for a specified term or the whole of the insured’s life, modified life insurance is a modified policy type. 

Modified life insurance offers alternative payment structures to those that traditionally apply. Modified insurance policies tend to commence with extremely low premiums and then increase after five or ten years.

Modified insurance is simply a variation of a traditional whole life policy, whereby the insured is covered for the whole of their life but enjoys the benefits of very low premiums for an initial period.

One of the disadvantages of a modified whole life insurance policy is that the accumulated policy’s cash value is not as great as if the whole life policy in its traditional form applied from the beginning. 


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What Is the Difference Between Universal and Whole Life Insurance? 

Both whole life insurance and universal life insurance are described as a form of permanent life insurance, with both types of policies providing insurance for the whole of the insured’s life, rather than a specific term, as is the case with term life insurance. 

Universal life insurance is also often referred to as adjustable life insurance, given the flexibility and options that are associated with these policies. 

Whole life insurance offers consistency in terms of level premiums and guaranteed death benefits, whereas universal life insurance benefits provide flexibility, with death coverage amount, premiums and savings elements all flexible and able to be tailored to individual needs.

Additionally, the insured can borrow from the cash value of a whole life insurance policy. In contrast, this option is not available in a universal whole life policy. 

Whether it be a result of illness or an unexpected event, the death of a loved one presents considerable difficulties for family members, friends, and loved ones left behind. 

This can include the burden of expenses such as funeral and burial costs, in addition to general living expenses and unpaid debts and with only an estimated half of all Australians holding some form of life insurance coverage it is more important than ever to ensure that you are one of the ones covered.

Suppose you currently hold a whole life insurance policy and are considering switching to a term life insurance policy. In that case, it is vital that you consider all of the options available to you, considering your financial obligations.

Still not sure where to start, or want help securing the right insurance faster? 

That’s okay!

Many people may be unaware of this…but just like you, 41% of Aussies intend to get financial advice rather than going it alone, according to an Australian Securities and Investments Commission (ASIC) report.

You can reach out to My Money Sorted to guide you for free before you seek professional advice from an insurance expert!

When you book a call with My Money Sorted, you’ll:

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✓ have an idea of your money goals

✓ be matched with the right insurance expert who can help simplify your search for an insurance policy that fits your needs

My Money Sorted is your stress-free pathway to getting ahead with your money. Here’s what your journey will look like:

Step 1: Start off with a quick money matters session with My Money Sorted

Step 2: Get matched with a Insurance Expert that’s right for your money situation

Step 3: Take the first step towards getting the protection you need with a clear and sound roadmap prepared by an Insurance Expert

It’s that easy!


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Employees: https://www.ato.gov.au/individuals/super/getting-your-super-started/employees/

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