Life insurance typically is purchased for its death benefit—that is a policy’s primary purpose, after all. But in addition to providing your loved ones with financial security after you pass, a
Read on to learn more about the features of whole life insurance and how you can maximize the investment in your policy.
How whole life insurance works
Despite the
Is whole life insurance a good investment?
Whole life insurance can’t be compared “apples to apples” with traditional investment vehicles. Unlike investments like
Kevin Foseid, life product consultant at Thrivent, says whole life insurance has three core guarantees: a level death benefit, a level premium that will not increase and a cash value that will grow over the life of the contract.
"In addition to the death benefit and how that can provide for your family in the event of your death, whole life insurance can be included in your overall financial strategy as an asset that can grow in value without having the same market exposure of other assets you own," he says.
Whole life insurance can be included in your overall financial strategy as an asset that can grow in value without having the same market exposure of other assets you own.
4 ways to use whole life insurance as an investment
There are a variety of ways to maximize your investment in a whole life insurance product, such as using the cash value of a policy for loans, withdrawing for income in retirement, creating generational wealth and more.
1. Withdraw or take a loan on the cash value
The most straightforward way to leverage your whole life insurance policy is to tap into the cash value to pay for major expenses, like college, a down payment on a house, an emergency fund or retirement income. If you have accumulated a significant cash value and no longer need the full death benefit, you can opt to receive regular payments from the policy’s cash value. This income may be tax-free, since there is no tax liability on partial surrenders of non-modified endowment contracts until you have received all your premiums back.
You also can
2. Create generational wealth
When working on your estate plan, you likely want to leave the full value of assets—whether it be investments, real estate, or a family business—to your heirs.
When working on your estate plan, you likely want to leave the
One way to help your heirs navigate estate taxes is to
Take out a loan
Borrow against your policy for big expenses by using your policy’s cash value as collateral for a loan. Access funds for major expenses like a home down payment, college tuition or emergencies.
Supplement retirement
Once enough cash value has built up, you can withdraw or receive regular income from your policy—often tax-free. This can complement other retirement income sources and reduce reliance on taxable investments, especially in later stages of retirement.
Create generational wealth
Placing your policy in an ILIT can help your beneficiaries receive the death benefit outside your taxable estate. That means they could use the funds to pay estate taxes or preserve inherited assets—helping your wealth last across generations.
Earn dividends
Eligible policies may earn dividends when your insurer performs well. Use them to reduce premiums, take cash payouts, repay policy loans or purchase paid-up additions—mini policies that grow your cash value and death benefit without extra underwriting.
3. Collect dividends
Not all whole life insurance contracts offer
- Credit your dividend toward your premium to reduce out-of-pocket payments.
- Pay yourself directly in cash with a check for the dividend amount.
- Credit the dividend to your life insurance contract to earn interest.
- Pay back any loans you’ve taken out against your contract.
- Purchase paid-up additional insurance to increase your contract’s cash value and death benefit.
How paid-up additions work
Using the dividends from your whole life insurance policy, you can purchase
4. Surrender the policy (but only if you no longer need it)
If you no longer need your whole life insurance policy, you can surrender it and receive the accumulated cash value, minus any fees and outstanding loan balances. Before making this decision, understand that a full surrender of the cash value may create a taxable event depending on the amount of earnings in the contract at the time of surrender.
You also should
When whole life insurance may not be a good investment
While whole life insurance offers many benefits to policyholders, it’s not a one-size-fits-all product, and there are some instances where it may not be a good investment for you:
- If you only need a death benefit for a specific timeframe and don’t care to accumulate cash value, consider a term policy instead.
- Cash value is modest and can be slow to grow, so if you’re comfortable taking on more risk in exchange for potential higher investment returns, traditional investments—like mutual funds—may be more appropriate.
- If you need to tap into the cash value sooner than anticipated, the cash value may be less than the premiums paid into the contract in a given year, resulting in a financial loss.
- The insurance company that holds your whole life insurance contract chooses where to invest the cash value portion of your policy, so if you’d like to be more hands-on with the investment strategy, consider other options.
FAQs
Can you outlive your whole life insurance policy?
What happens if I stop paying premiums on a whole life policy?
Can I use a whole life policy to pay for long-term care?
Is borrowing against my whole life insurance a good idea?
What happens to the cash value when I die?
Is whole life insurance worth it?
Whole life insurance may be right for you if:
- You want a stable life insurance option where premiums won’t increase over time.
- You want to leave a guaranteed death benefit to your loved ones.
- You want to generate cash value—which is guaranteed to increase each year—to fund your own future expenses, as cash value doesn’t pass down to your heirs.
A