Here at I&E, we ask the question, “What if you use can cash value life insurance for something more powerful than only death insurance?” What if you could fund a permanent life insurance policy that would further multiple financial and risk management goals, such as building a retirement plan, covering disability insurance, providing long term care insurance, and creating your own personal banking system?
We have found that cash value life insurance is the best vehicle available for liquidity and control, particularly when used strategically as a home base “safe bucket,” from which to build your financial foundation.
Table of Contents:
- Introduction to Cash Value Life Insurance
- Cash Value vs Cash Surrender Value
- Cash Value Life Insurance Benefits
- Best Cash Value Life Insurance Companies
An Introduction to Cash Value Life Insurance
Cash value life insurance DEFINITION: a permanent life insurance policy that provides a death benefit, which also has a savings account that accumulates cash value. The cash value account in the policy grows over time and can be accessed through surrendering the policy, withdrawing from the policy or taking out a policy loan.
Inner-Workings
The inner-workings of cash value life insurance consists of a life insurance policy, which is a contract between the policy owner, the insured (often the same person), and the insurer, where the insurer agrees to pay a death benefit to the policy’s beneficiary, based on the owner continuing to make the policy’s premium payments.
Cash Value Accumulation
The premium paid to the insurer goes into a cash account, minus any costs and fees, which builds your cash value account in the policy over time.
Cash value can accumulate within a policy in a number of ways and the formula used will dictate the type of permanent life insurance policy.
Rather than deep diving into the various types of life insurance policies, this article will keep a more general focus on the idea of accruing cash within a policy. However, by clicking any of the article links you can learn more about that particular subject.
For our top 10 cash value life insurance companies featured in this article, we will emphasize both participating life insurance and other types of permanent coverage offered by each company, such as Indexed Universal Life (IUL), which also offers cash accumulation and growth.
However, we have not included Variable Universal Life (VUL) because it does not serve one of our primary goals in this article, which is cash value growth without risk of loss.
Also note, term life insurance is not included in the following discussion for the simple reason that term insurance policies do not typically build cash value. Further, unlike cash value life insurance, once the term is up, your life insurance policy ends and will lapse if you do not renew it.
Cash Value vs Cash Surrender Value
It is important to differentiate between total cash value and cash surrender value.
The total cash value is the total accumulated cash in your policy.
The cash surrender value is the amount of cash in your policy, minus any surrender charges for early policy withdrawals or termination.
In the early going, your total cash value may be higher than your cash surrender value due to the surrender charge imposed by the insurer. This is particularly true of universal life policies. However, the surrender charge will go away, usually around the 10 -15 year mark after policy issue.
The best life insurance coverage is somewhat subjective but we define it as a cash value policy that provides protection, limits risk, builds wealth and creates a legacy. It should include high cash value growth, with built in protections against loss, be tax advantaged and offered from a highly rated insurance company.
Cash Value Life Insurance Benefits
- Contractual Rate of Return
- Lasts Your Entire Life
- Tax Free Accumulation
- Wealth Storehouse
- Recapture Interest
1. Contractual Rate Of Return
Cash value whole life insurance offers a contractual rate of return as well as likely dividends and additional growth that is not dependent upon the financial markets.
This first point applies to traditional whole life insurance coverage and not to alternatives, such as variable universal life, which may be tied to the stock market.
Traditional whole life insurance offers a contractually guaranteed rate of return based upon the cash value deposited.
Whole life policies also offer non-guaranteed “up side” that essentially improves upon the guaranteed portion through the payment of dividends.
While the dividends are not “guaranteed” most of the established companies have paid dividends consistently for the last 100 years regardless of the markets or other financial circumstances.
Depending upon the policy projections, the rate of guaranteed growth is usually around 4% in today’s interest climate and this policy growth may be increased further by utilizing some of the strategies discussed below.
Non-Guaranteed
Other types of permanent life insurance policies that do not have contractually guaranteed returns may provide higher rates of return. For instance, an indexed universal life policy may return 9-13% in a given year, depending on what cap rate and participation rate of the policy.
Another type of permanent life insurance is variable universal life insurance, which has returns correlated to the stock market, so returns in excess of 10-20% or more are not out of the question in booming stock market years.
2. Lasts your entire life
Cash value life insurance lasts for life as long as you pay premiums and it may get less expensive as you get older and the policy matures.
Some financial spokespeople, most notably, Dave Ramsey and Suze Orman, push a life insurance strategy that is to “buy term and invest the difference“, AKA BTID.
Essentially, they are pitting whole life vs term life, advocating that everyone purchase term life insurance, because it costs less than whole life insurance, and then investing the difference in whatever retirement account, mutual fund or other investment…that they happen to recommend, of course.
Without diving too much into a repudiation of this common objection, suffice to say that this blanket advice tends to miss a few critically important details.
First, term life insurance gets more expensive as one ages AND whole life insurance gets cheaper.
So, consider which is a better retirement plan…to defer your life insurance and pay exorbitant premiums later or simply go without any life insurance coverage.
Alternatively, you could pay more for whole life when you’re younger and enjoy fully paid-up life insurance protection as a retiree.
Term Policies Don’t Pay Out
In fact, the insurance companies know that most term life policies never pay a death benefit because the policy expires before the person dies. It is believed that 98-99% of term life insurance policies expire without paying out.
Essentially, the insurance company spent little to provide the death benefit.
On the other hand, whole life policies ALWAYS pay a death benefit if kept in force and therefore they are more expensive at first.
Dave Ramsey suggests that this increasing expense should be handled by “investing the difference” when you’re young so you can self insure. I would suggest that this is dangerous advice to say the least.
The historic returns of the stock market have not been shown to outpace the steady 4% guaranteed return of a whole life policy, further benefited from potential dividend payments ranging from 2-3.5% and up depending on the interest rate environment. That is a total potential return of 7% annually income tax free!
In contrast, assets such as IRAs and 401k plans stand to be depleted by taxes even if the market delivers an “uncharacteristic” consistent return.
Prudent estate planning dictates that as we age, the welfare of our loved ones gets more important AND our expenses for health care and insurance tend to increase.
So, a front end loaded whole life policy with a permanent, growing death benefit is inherently wise and effective for providing peace of mind, securing your financial future and providing loved ones with needed resources.
3. Tax Free Cash Accumulation
Cash value life insurance accumulates cash value with after tax dollars, much like a Roth IRA, but offers total flexibility for cash withdrawals and policy loans.
The IRC section on cash value life insurance breaks down the tax incentives of this type of asset.
Basically, cash value grows income tax deferred. If you withdraw from the policy, all premiums paid up to your basis can be withdrawn tax free.
Further, life insurance loans are tax free.
Now compare this with a Roth IRA.
Most people have been privy to the financial community’s raving about the Roth IRA in recent years.
For those of you who haven’t heard, the pitch is for the IRA or 401K is to ask whether a person believes that taxes will be lower now or in the future.
A common answer upon reflection is…higher in the future. Put another way, I pose the same question concerning whole life insurance by asking…is your dollar worth more now or in the future?
To answer the question, I suggest that the dollar in your hand right now is more valuable than that future dollar for a couple of reasons.
First, inflation dictates that your dollar will be less in the future.
If you think inflation doesn’t apply because it hasn’t been talked about recently and the Fed hasn’t raised rates, think again.
Inflation is the reason that you’ll pay more for housing, food, clothing, or a new car today than 10 years ago.
Another reason that your dollar is worth more right now is the likelihood of increasing taxes.
Simply put, if you have 1 million dollars in a 401k or IRA, that isn’t really what you have…depending upon your tax bracket, you can deduct 25%-35% or more from that number.
So, if you’re noticing that I’m analyzing the typical 401K and whole life insurance together, you’re correct and I’m doing so because a whole life insurance policy operates more like a ROTH IRA but with greater flexibility, as well as a death benefit.
Whereas whole life policies offer total flexibility for withdrawing cash from the cash value account AND taking policy loans, there are actually a series of restrictions for IRA withdrawals, and 401K loans and withdrawal rules are even worse!
Another consideration is the fact that the 401K Plan or IRA is reliant upon the roller coaster of success and failure that is the financial markets.
4. Wealth Storehouse
Cash value life insurance is an extremely safe investment that can be utilized as needed to fund higher risk/return investments.
There is a reason that the largest banks and financial institutions invest billions of dollars in bank owned life insurance (BOLI) and corporate owned life insurance (COLI).
These are AA and AAA rated companies that have not only weathered the most tumultuous of markets but have even continued to pay dividends through these turbulent periods.
As discussed, most financial advisors who recommend a “bucket system” for “saving”, “investing”, “emergencies”…would also agree that the savings bucket should be a safe place for funds that one cannot afford to lose.
Thus, it is not appropriate to place savings in the markets for obvious reasons. Yet, isn’t the financial community striving to convince you to do just that?
Of course, you can leave your savings in the bank and earn less than 1% interest.
Herein lies the inconsistency in Dave Ramsey’s recommendation because although he advocates an “emergency fund” he fails to see the utility of using a permanent life insurance policy for this very purpose, despite that fact that life insurance has asset protection in many states.
5. Recapturing Interest
Cash value life insurance can be strategically used to maximize the cash value and tax savings while recapturing debts for financing other necessary items, such as vehicles, real estate investing, or business expenditures.
The basic idea behind is that a policy holder can design a whole life policy to accrue cash value more quickly for the purpose of setting up a unique vehicle for growing cash value to be used for retirement planning or to purchase assets.
This strategy is highly favorable to permanent life insurance because it allows the individual to recapture all interest and expenses that are being paid to third parties, resulting in ever increasing high cash value account growth.
Ask yourself this…
A question to consider that is absolutely critical is how much of your current payments for your house, car and other debt laden assets is being applied to the principal? It isn’t the rate of interest but actually the volume of interest that is important.
What that means is…
When you structure a whole life policy to recapture this debt and then commit to paying back the debt (at least the interest) it is possible to put your policy gains (and death benefit gains) on steroids.
Moreover the flexibility of cash value life insurance allows you to access the funds for other investments when opportunities are made available, such as during market crashes and bubbles popping.
For example…
If you’re a real estate investor, the cash value of your policy can be accessed for real estate investments and the return on investment can be exponential because you’re making a return on the funds already in your policy…(“it’s your money”) as well as the return on your real estate investment.
If you’re a business owner, and are leasing equipment or facilities, there are strategies to recapture your borrowing costs and the results in policy growth can be dramatic.
This strategy all begins with a properly structured cash value life insurance policy and a commitment to treating your policy like any other business venture.
Yes, the cash value in the policy takes some time to accrue in the same way that any other business requires start up capital to get going…but when the policy is funded, the magic begins.
And funding a policy can be done in months a couple of years, not 10+ years as many suggest based upon conventional policy designs that focus on death benefit.
So with all these benefits of permanent life insurance, which companies are going to offer the best policies?
Best Cash Value Life Insurance Companies
The following insurers are our picks for the top 10 cash value life insurance companies, in no particular order.
1. North American Company for Life and Health
North American’s Rapid Builder Indexed Universal Life insurance offers high cash value life insurance accumulation.
The company’s IUL policy offers daily crediting so that premiums paid into the policy are credited to the indexing account the next business day after they are received.
The name “Rapid Builder” refers to the policies rapid cash value build due in large part to 0% premium loads.
For more on this top IUL company, go to our North American Company review.
2. Penn Mutual
Penn Mutual’s Indexed Universal Life policy offers a cash value enhancement rider to supercharge your cash value growth. With an additional No Lapse Guarantee, you can rest assured that your policy will not lapse even if the cash surrender value drops below zero.
In addition, Penn Mutual’s Guaranteed Choice Whole Life Insurance is one of the top whole life insurance policies in the marketplace. With flexible requirements on the paid up additions options, the policy provides early high cash value surrender values, making Penn Mutual’s whole life policy a top contender for anyone looking for the best whole life insurance.
Additionally, Penn Mutual provides a living benefit chronic illness rider on most newly issued permanent coverage. The rider allows the death benefit to be accessed early if you are diagnosed with a qualifying chronic illness. Upon approval of a claim, the insurer will provide a cash indemnity benefit to be used for whatever you need it for.
For more on this great life insurance company, please visit our Penn Mutual review.
3. MassMutual
Whole life insurance and MassMutual are synonymous. Particularly, the companies 10 Pay Whole Life policy offers exceptional cash value growth with the benefit of a limited pay policy.
The benefit of limited pay policies being that you pay into the policy for 10 years and no longer need to make premium payments, but your policy cash value and death benefit continue to grow.
And the policy has the opportunity to earn dividends, to further accentuate the cash value growth.
For more on this top life insurance company, please visit our MassMutual review.
4. Foresters Financial
Although probably the least well known on our list of the best cash value life insurance companies, the company’s 20 pay whole life insurance offers some of the most advantageous cash value growth in the marketplace.
In addition, you can qualify for up to a $400,000 no medical exam whole life insurance policy thanks to Foresters unique non-medical underwriting.
For more on this fantastic insurance carrier, please check out our Foresters Financial review.
5. New York Life
Another company whose name and whole life insurance go hand in hand is New York Life.
As the nation’s largest mutual life insurance company, New York Life has wowed policyholders year in and year out with its fantastic cash value growth due to a solid history of dividend payments.
With a perfect Comdex rating of 100, the company enjoys many accolades in the industry as one of the top rated carriers.
New York Life whole life insurance should always be considered when looking for the best cash value policy in the marketplace.
For more on this top rated life insurer, please stop by our New York Life whole life insurance review.
6. Voya Financial
VOYA is no longer offering individual life insurance.
One of the more interesting cash value life insurance policies is offered through Voya.
The company’s Indexed Universal Life – Global Choice, issued through Security Life of Denver Insurance Company, provides index crediting potential based on a formula that tracks the performance of a major indices, such as the S&P 500, potentially generating higher cash value accumulation than traditional whole life or universal life, but without the potential negative returns of variable life insurance.
You can choose from three different indexed strategies:
- S&P 500 1 Year Point to Point Indexed Strategy
- Year Global Indexed Strategy
- 5 year Global Indexed Strategy
What really sets this policy apart is the 2 year and 5 year Global Indexed Strategy, which use the S&P 500, EURO STOXX 50 and Hang Seng Indexes.
Upon the completion of the 2 or 5 year period, your cash value is credited with a portion of the 2 best performing indexes. You get 75% crediting on the highest index, 25% on the second highest and 0% on the third.
For more on this insurance carrier, please check out our Voya Financial review.
7. Minnesota Life
Minnesota Life, an affiliate of Securian Financial Group, offers two policies that you should consider when deciding on the best cash value life insurance.
The company’s Orion IUL and Secure Accumulator Whole Life can both be tailored to maximize early cash value accumulation.
The Orion IUL provides indexed accounts with competitive caps, as well as potential uncapped crediting or a crediting multiplier. Participation rates vary from 90-110% depending on the indexed account you choose.
For more on this exciting insurance carrier, please check out our Minnesota Life review.
8. Ohio National
Ohio National is no longer a mutual insurance company.
Ohio National practices non-direct recognition, which means the company continues to credit the full cash value in your policy when computing dividends, even if you have an outstanding policy loan.
If you plan to actively use your life insurance as your personal bank you may find that non-direct companies provide a better place to store your money, since you have a better chance of earning positive arbitrage in contrast to direct recognition companies.
The company offers a 10-Pay limited pay whole life policy that also provides the opportunity for dividends. 2016 marked the 93rd consecutive year that Ohio National has paid out dividends to its participating policyholders, with a total of $80.6 million paid or credited.
Ohio National’s Dividends Rate has hovered around 8.3% at the high (2000, 2001) to 6.0% (2013-2016) at the low over the last 17 years.
For more on this top rated insurance carrier, please check out our Ohio National review.
9. Pacific Life
Another top cash value company and policy, Pacific Life’s Pacific Indexed Accumulator (IUL) is designed for high cash value growth, rather than a high initial death benefit.
And the policy’s death benefit can be set up so that it increases in relation to the accumulated value. That way you can continue to grow the death benefit over time as your cash value grows.
And when you get to a point where you want a more reliable premium payment, you can change the death benefit to level or level with return of premium.
Additionally, Pacific Life is one of the best long-term care insurance companies offering asset based LTC coverage.
The Company’s LTC rider allows access to the policy’s death benefit to cover costs associated with long-term care services due to chronic illness or severe cognitive impairment, such as Alzheimer’s Disease.
For more on this top insurance carrier, please check out our Pacific Life review.
10. Lafayette Life
With a Comdex ranking of 96 and the company’s commitment to whole life insurance as a non-direct recognition company, Lafayette Life is another solid choice for cash value whole life.
You can also choose a long-term care rider which provides a monthly benefit if you cannot perform two of six ADLs.
Further, Lafayette Life also provides an accelerated death benefit rider at no additional cost.
The combination of whole life with long-term care makes Lafayette Life a definite consideration when you want the best life insurance with additional living benefits.
For more on this top rated insurance carrier, please check out our Lafayette Life review.
Conclusion
Cash value life insurance is an excellent asset to own. Our goal in this article was not to make you an expert in life insurance but to show you our expertise. That way you can be confident we can help you find the best company and policy for you, based on your unique needs and goals.
Please sign up for a complimentary strategy session today to learn more about how cash value life insurance can benefit you.
