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Whole Life Insurance Cash Value Accumulation and Growth

Fact Checked by Jason Herring & Barry Brooksby
Licensed Agents & Life Insurance Experts.
As a licensed insurance agency, Insurance and Estates is committed to integrity in our editorial standards and transparency in how we receive compensation from our insurance partners.
cash value accumulation growth

Cash value life insurance refers to a type of life insurance that, in addition to paying out a death benefit to your beneficiary or beneficiaries upon your death, accumulates cash value inside the policy while you are alive, that you can use for whatever you please.

Contrast whole life vs term life insurance, where term life pays a death benefit only, does not accumulate cash value and may not last your entire life. And while term insurance is sold for specific periods of time, typically anywhere from 5 to 30 years, a cash value insurance policy is usually considered to be a permanent life insurance policy, as these products are designed to remain in force for your entire life.

From a strategic standpoint, the popularity of cash value life insurance stems from its ability to both provide insurance protection and grow funds on a tax-deferred basis – interest and earnings in policies of this type are not taxable unless a triggering event occurs, such as surrendering the policy. This is one of many benefits of life insurance.

With a number of ways to use the money that builds up in the cash value account, such as taking out a life insurance loan or paying insurance premiums, the flexibility these policies offer make them attractive to individuals looking to build up savings while at the same time securing insurance coverage providing leverage in the form of a death benefit payout.

Whole Life Insurance Cash Value Rates

Initially, the premiums paid on cash value insurance, such as whole life insurance rates, are higher than those associated with term insurance, given that term insurance payments are used just to pay for current insurance coverage and not to build up cash value in the policy.

Cash value life insurance typically features a level premium payment with a portion being used to pay the insurance costs, including administration expenses and costs associated with providing a death benefit, with the remainder directed to the cash account.

Growth of the whole life insurance cash value depends on a variety of factors, including the premium amount and the level of fees charged by the life insurance company, the performance of the investments the insurance company makes, the amount of claims paid and properly blending available policy riders.

Cash Value vs Death Benefit

In fact, your life insurance agent can design a whole life policy for you that generates high cash value vs a large death benefit. Through the use of a term rider, you can add a larger paid-up additions rider to help increase the growth of your whole life policy’s cash value. With more of your insurance premium going to your paid-up additions, it can greatly reduce your overall fees and costs (and your agent’s commission).

Whole Life Insurance Cash Value Calculator

If you are interested in seeing different illustrations, please click below to be taken to our whole life insurance quotes page where you can request your own illustration. Once we have the necessary information we can run a personalized whole life insurance cash value calculator (i.e. an illustration) for you, based on your specific health, objectives and needs.

Types of Cash Value Life Insurance

The main cash value life insurance types are as follows:
  • Whole life insurance
  • Universal life insurance
  • Indexed universal life insurance
  • Variable universal life insurance

In some cases, cash value insurance, specifically whole life insurance, features a minimum rate of return guarantee on funds held in a policy’s cash account, which is one of many whole life insurance pros and cons.

Whole life policies allow you to build up cash that you can access if needed, but without an investment component linked to the stock market. This “decoupling” from the market is attractive for investors seeking to diversify, since whole life insurance is an asset outside of Wall St.

Participating whole life insurance also provides dividend payments. Dividends are not guaranteed, but most mutual insurance companies have paid dividends for over 100 years. Dividends can be used in a variety of ways, with various options available. For maximum whole life insurance cash value growth, choosing the paid-up additions option, which purchases additional paid-up insurance, will further enhance your policy’s cash value and grow your death benefit.

IUL (indexed universal life) offers investment accounts linked to the performance of a stock market index such as the S&P 500, often with downside protection that guarantees that you won’t lose money in your cash account if the market declines.

VUL (variable universal life) provides you with ability to invest in market-linked funds or indexes, but without the downside protection usually offered by IUL policies.

All types of permanent cash value policies typically have a specified cash surrender period that must lapse before you can completely withdraw the cash value in the policy without paying penalties to the life insurance company.

Tax Treatment of Cash Value Life Insurance

Cash value life insurance, whether whole life, IUL, or VUL, allows for the tax-free growth of funds in a policy’s cash account unless the policy is canceled or surrendered, transferred or assigned to another owner, or the IRS no longer designates the policy a life insurance contract.

In participating whole life insurance policies, which pay out dividends, the dividends are considered to be a return of premium as long as they don’t exceed, in total, the full amount of the premiums paid on the policy.

This ability to build tax-favored savings over time is a powerful benefit of permanent life insurance policies. These funds can be put to use in a variety of ways, allowing them to function as living benefits.

Whole Life Insurance Cash Value Living Benefits

There are many benefits to cash value in whole life insurance. The savings which accumulate in the cash account of your cash value insurance policy can be used as follows:

Some policies allow you to take tax-free withdrawals to the extent that they don’t total more than your cost basis, or your total investment in the policy. You should be cautious when taking such withdrawals as they can result in a reduction in the amount of the policy’s death benefit. Also, if you take withdrawals before the surrender period established by the policy ends you may have to pay a penalty for early withdrawal.

The majority of such policies allow you to take tax-free life insurance loans from the life insurance company’s general account, using your cash value as collateral. As with withdrawals, loans can reduce the amount of your policy’s death benefit. Thus, while it is not required that you repay a loan, you should be aware of the effect that failing to do so will have on your policy’s death benefit.

Interest is charged on any loans taken out at a rate determined by the insurance company, but often at rates that are lower than you would pay on many consumer loans. This interest can further reduce the value of your cash account and the death benefit.

Upon designing your policy, interest rates charged on loans can be either variable or fixed. Typically, life insurance companies that practice non-direct recognition will only offer variable interest rate loans.

Notably, you can use the cash value of your policy to pay premiums. When enough cash value has accumulated in your policy, you can use it to make premium payments over the lifetime of the policy, eliminating the need to make out-of-pocket payments.

Your death benefit can be accessed if you are diagnosed terminally ill. In addition, certain riders, such as long-term care riders and chronic illness riders, can be added to your policy, which allow you to access your death benefit if you are diagnosed with a qualifying chronic illness.

Limited Pay Cash Value Whole Life Insurance

You may also want to consider limited pay whole life insurance where you make payments for a specific period of time, say for 7, 10 or 20 years. After such time, your policy is paid-up, and no more payments are due.

Whole Life Cash Value Loans and Withdrawals

The cash taken from your policy can be used for any variety of purposes, including:

  • Fund an investment portfolio
  • Pay unexpected expenses
  • Meet retirement expenses
  • Other discretionary funding purposes

The bottom line is that cash value life insurance can be an effective method for building up savings in a structured fashion.

Life insurance is a good investment. And while perhaps not as exciting an investment as individual stocks or mutual funds, the flexibility of these policies in regard to withdrawing funds, along with their tax-favored nature, makes them worthy of consideration by investors who are looking for a means of building up additional savings, especially if they are also looking for life insurance coverage.

And with a properly designed policy, you can use the cash value life insurance as a safe bucket, conducting much of your financing in and through the policy. For more on this, please see our article covering infinite banking.


Cash value is an important part of life insurance. As a society, we have moved away from this fantastic tool, choosing to follow guides who may not have our best interests in mind, or who lack the understanding of how powerful a properly designed cash value policy can be.

For more on permanent cash value policies, please have a look around our site or give us a call today to speak to our team of advanced planning professionals.

4 comments… add one
  • linda Ward September 9, 2019, 10:07 am

    I would like to know the cash value of my granddaughters policy that I purchase years ago, also at the time I purchased it on her 18th birthday the coverage was suppose to double with the premium staying the same I do not see this double coverage on my bill and she is almost 21.

    • Insurance&Estates September 11, 2019, 8:45 am

      Hello Linda, I’m not sure you’ve reached the right place because it appears that you’re looking for an insurance company. Sometimes folks confuse us with the company, so please check your policy and make sure you’re calling the company directly.

      Best, I&E

  • Doug Pollock December 16, 2019, 5:17 pm

    I purchased a whole life policy in 1988 at the age of 48 years old, and borrowed a total of $40,000.00 and always paid my interest every years, and have accumulated $48,000.00 of guaranteed cash value and $40,000.00 of paid up insurance, on a $70,000.00 life insurance policy, what kind of $ would my beneficiary receive I am now 80 years old. Thank you in advance

    • Insurance&Estates December 31, 2019, 11:08 am

      Hello Doug, thanks for commenting. It sounds like the death benefit would be $70,000 based upon your facts. However, a policy review with our expert would help you know for sure. Feel free to contact Jason at jason@insuranceandestates.com.

      Best, Steve Gibbs for I&E

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