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Whole Life Insurance For Retirement [Guaranteed Returns Provide Security When You Need It Most]

Fact Checked by Jason Herring & Barry Brooksby
Licensed Agents & Life Insurance Experts.
Insurance and Estates, a strategic life insurance provider composed of life insurance professionals, is committed to integrity in our editorial standards and transparency in how we receive compensation from our insurance partners.
life insurance retirement plan whole life

Unlike the majority of the articles that are about using whole life insurance in retirement, we are actually going to give you some reasons why whole life is a good choice for people who are not among the 1%.

You see, whole life provides certain benefits, such as a tax favored status, that makes it a unique product to use for most people looking for a good retirement vehicle.

However, just about every other mainstream article out there will simply tell you to buy term and invest the difference.

Unfortunately, the mainstream advice is short sighted or biased, failing to take into account the ways in which planning for retirement with whole life insurance can provide you with a secure safe bucket, yielding guaranteed returns year in and year out.

Dividend paying whole life insurance can comprise an important component of a retirement plan, given its guaranteed cash account growth, tax advantages, and cash value liquidity provisions, among other factors.

To understand how whole life insurance can play a vital part in building a comprehensive retirement plan, this article takes a detailed look at the features which make it useful for this purpose.

Whole Life insurance Retirement

One whole life insurance benefit that sets it apart from other permanent insurance policies is the guarantees it offers. Whole life offers guaranteed cash value growth, guaranteed death benefit payout and guaranteed fixed level premium payments.

Guaranteed Cash Value Account Growth

The guaranteed growth of a whole life insurance cash account is one of the most powerful benefits of this type of insurance when it comes to planning for retirement.

While whole life insurance retirement planning involves taking into account a variety of factors, including your investment objectives, time horizon, and financial circumstances, the appeal of adding a whole policy to your retirement planning mix often boils down to adding a degree of certainty to what can be an uncertain proposition.

As long as payments are made, the insurance company sponsoring a whole life policy guarantees a specified amount of growth in the cash value account.

In the case of participating whole life, this growth can be boosted by dividends paid to policyowners.

The rate of return offered by participating whole life policies has, by and large, compared favorably with investments of comparable risk in recent years, although it is more accurate to call it a savings vehicle than to to consider whole life insurance an investment.

Non Correlated Asset

While most retirement planners emphasize the benefits of investing retirement funds in equity investments linked to the stock market, placing all of your retirement funds in such investments can be risky.

Twice in the past two decades, in 2001 and 2008, the stock market experienced brutal downturns, savaging the savings of those who relied on equity investments for the bulk of their retirement funds.

While the stock market eventually bounced back from both of those bear markets, investors who had counted on achieving certain rates of return from their savings at that time found themselves forced, in some cases, to rethink their retirement plans – even to the point of delaying their retirement.

Furthermore, there is no guarantee that in any future downturn the market will regain the ground it has lost as quickly as it did after the last two crashes.

As a result, when planning for retirement, whole life insurance can reduce investment risk by providing a source of growth that is not directly linked to the performance of the stock market, because whole life insurance is an asset that is not correlated to the stock market.

In other words, whole life provides guaranteed growth regardless of how the stock market performs.

Favorable Tax Treatment 

Because growth in the value of your whole life insurance cash account is not subject to current taxation, these accounts are well-suited to helping individuals save for retirement. Your cash value grows in a tax deferred account, providing true compound interest growth.

By enabling your cash value to build up faster than would be the case if taxes had to be paid on yearly policy growth, this tax deferral can make it easier to meet your retirement savings goals.

401k & IRA

While 401(k)s, IRAs, and other such retirement plans also offer tax advantages, it should be mentioned that these plans generally have stricter limitations with regard to how much money you can contribute and when you can take penalty-free withdrawals.

For instance, most withdrawals from a 401(k) or IRA before 59 ½ are subject to a 10% penalty from the IRS, in addition to any taxes owed.

This is not the case with whole life insurance, where once you have amassed a sufficient sum in your cash value account, that money can be withdrawn at any age without an IRS penalty via a policy loan or partial withdrawals, as long as such withdrawals don’t exceed your total contributions to the policy.

Additionally, traditional and Roth IRAs features contribution limits (for tax year 2019: $,6000; $7,000 for those over 50) that can limit your ability to set aside enough funds to amass adequate savings for retirement.

Thus, individuals planning to retire before age 59 ½ could utilize whole life both to help fund early retirement and to avoid having to pay penalties they would otherwise be subject to as a result of taking withdrawals from retirement plans such as 401(k)s and IRAs during the first part of their retirement.

Liquidity Via Cash Account Loans  

The ability to access the funds in a whole life insurance policy’s cash account via a policy loan is another benefit such policies offer.

Because these loans are not subject to current taxation, as long as they don’t exceed your total contributions to the policy, it enables you to use whole life insurance as a tax-free funding mechanism for retirement.

You can also take partial surrenders of your policy’s cash value up to the amount you have contributed to the policy free of taxation. 

The combination of tax-free access to the funds in your cash account and no government-mandated contribution limits makes whole life insurance a powerful option for maximizing the amount of funds available to you in retirement.

And for taxpayers in the highest tax brackets, whole life policies can serve as a valuable tool for designing a retirement plan that offers both excellent tax advantages and significant flexibility in terms of when and how to take retirement income.

Benefit from both Insurance Protection and Retirement Income

People often look at their retirement planning and insurance planning as completely separate functions. But given that the money used for both purposes ultimately comes from the same source, considering them together makes sense from a planning perspective.

In addition to the ability to set aside funds that will grow free from current taxation, a whole life insurance policy also provides protection for your beneficiaries in the event of your death.

While policy loans or partial withdrawals used to provide retirement income will reduce your policy’s death benefit amount, as long as you retain enough funds in your policy to make the required payments, your beneficiaries will receive the death benefit income tax free upon your death.

Whole life vs Term life

Because whole life is a form of permanent life insurance, this protection continues throughout your life, providing greater peace of mind than might be the case with term life insurance.

While term is much less expensive than whole life initially, because its premiums are guaranteed to remain level for the life of the policy as long as payments are made on time, purchasing whole life can be less expensive than buying term life continuously over the course of your lifetime – due to the fact that the cost to purchase a term life policy rises steeply as a person ages.

Additionally, unlike term life, whole life insurance offers a savings feature that begins to actually make you money starting in year three on properly designed policies from a mutual insurance company.

Thus, whole life offers both the ability to save funds for retirement as well as permanent insurance coverage to help protect your beneficiaries for the entirety of your life, rather than just when you are young.

Whole Life Insurance and Retirement Planning

Whole life insurance offers a number of powerful benefits that can make it an important element of the retirement planning process.

However, it is best suited for people looking to build up retirement funds at a steady pace over time, rather than looking to gamble on achieving large yearly gains from stock market moves.

As mentioned previously, investments that offer exposure to the stock market, such as mutual funds, ETFs, and individual stocks, can produce large returns in any given year or period of time, but are risky in that stock market returns can evaporate quickly if the market crashes.

For this reason, whole life insurance can be used as a conservative savings vehicle to balance out more risky equity investments in a retirement plan.

Maxed Out Contributions

In addition, whole life insurance can be especially attractive if you have maxed out your allowable contributions to retirement plans such as 401(k)s and IRAs.

Besides its greater flexibility in terms of when funds can be withdrawn without penalties, whole life, as previously mentioned, doesn’t have contribution limits as these other plans do, making it an attractive vehicle for individuals seeking to set aside as much money as possible for their retirement.

Maximize Cash Value

To optimize the utility of whole life insurance as a retirement vehicle, a common strategy is to minimize the amount of death benefit insurance on a policy while maximizing the amount attributed to cash value.


This can be accomplished by purchasing paid-up additions which directly increase cash value.

The trick is to add as much as possible to cash value without overfunding a policy to such an extent that it is designated a MEC (modified endowment contract), causing it to lose its tax-deferred status.


Care should be taken when withdrawing funds from a policy’s cash value that enough remains to make payments on the policy to avoid causing the policy to lapse with significant loans outstanding.

If this occurs, funds taken from the policy may become taxable, potentially creating taxes on “phantom income.”


Overall, whole life insurance can serve as an excellent vehicle for building up funds you can tap to support your lifestyle in retirement.

Such policies typically require a long-term commitment to build significant cash value, so they are most appropriate for people who are willing to set aside a certain amount of money on a regular basis.

Whole life insurance’s combination of guaranteed returns, flexible withdrawal options, and tax-favored growth makes such policies an option well worth considering for anyone interested in comprehensively preparing for retirement.

So what are you waiting for? Give us a call today to discuss if whole life insurance retirement plan is the right decision for you.

2 comments… add one
  • Vinod February 15, 2020, 4:30 pm

    Wt TM s we get the money return, when I put 1000 rs cash per month, as premium ,then tht have how much sumassured

    • Insurance&Estates February 17, 2020, 2:06 pm

      Hello, thanks for commenting…feel free to connect with one of our Pro Client Guides for more information.

      Best, I&E

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