Page Reviewed / Updated – May 12, 2022

Whole life insurance, also known as permanent life insurance, is a life insurance policy designed to follow the policyholder through life unless they cancel it or allow their premium payments to lapse. This insurance type can be costly since it does not expire after a specific term, but it does guarantee coverage in the event of death, and unlike term life insurance, it accumulates cash value. The advantage of a whole life insurance plan is it locks the policyholder into premiums for life. Therefore, high premiums become manageable over time and do not increase with inflation. 

Does Whole Life Insurance Affect Medicare Benefits?

Whole life insurance is considered an asset but will not affect the ability to receive Medicare when an applicant reaches retirement age. However, it will affect Medicaid approval since it has cash value and is accessible before payout. Low-income seniors who depend on Medicare and Medicaid may not be good candidates for a whole life insurance policy. Term life and death benefit policies may be better matches for their needs. 

Should Seniors Borrow from Their Whole Life Insurance?

Many retirees view their whole life insurance cash value as an investment with some using the funds to travel or pay medical bills at a certain point. However, most financial advisors advise against borrowing from whole life insurance unless necessary. 

While these funds are easily accessible and often have lower interest rates than personal loans, borrowing money increases a policy’s chance of lapsing since interest is still due. Losing the total value of a life insurance plan over a small loan is not a wise decision. In addition, it reduces the overall death benefit that the beneficiary will receive. 

The one advantage of borrowing money from whole life insurance is that it is not taxable in most cases. Therefore, seniors need to consult a financial advisor and think carefully before using in their whole life insurance cash value.

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