How to Use Life Insurance to Build Wealth in 2026

Building wealth with life insurance is possible with permanent policies. These have a savings component that grows, known as cash value, while you're still alive. You can borrow the cash value, use it for retirement income or include it in estate planning.

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How to Use Life Insurance to Build Wealth in 2026

Written by Patrick Bryant

Updated: August 13, 2026

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Key Takeaways

Permanent life insurance, such as whole life, universal life and indexed universal life, builds up savings, called cash value, that can grow tax-deferred. Term life builds no cash value at all.

Policyholders with participating whole life policies may earn annual dividends. Some insurers have paid dividends continuously for more than 100 years, but dividends are never guaranteed.

Cash value growth is slow in early policy years because most of the premium covers the cost of insurance. It can take 10 or more years before your policy's surrender value noticeably exceeds premiums paid.

Life insurance wealth strategies work best alongside, not instead of, tax-advantaged retirement accounts. Maxing out a 401(k) or IRA first is the standard financial planning recommendation before using life insurance for investment purposes.

Which Life Insurance Policies Actually Build Wealth?

Permanent life insurance builds wealth through a mechanism called cash value, a tax-deferred savings component that accumulates inside whole life, universal life and indexed universal life (IUL) policies as premiums are paid over time.

This strategy fits higher earners who've already maximized tax-advantaged retirement accounts, people with estate planning needs and business owners who need funded buy-sell agreements or key person coverage. It's less effective for people who may surrender the policy early, since cash value during the first decade often doesn't exceed the total premiums paid, and it's not a good fit for anyone who needs liquidity before the policy has time to accumulate value.

Whole Life Insurance
Whole life insurance provides a guaranteed death benefit and builds cash value at a fixed, contractually guaranteed rate set by the insurer. Premiums stay level for your entire life.

Participating whole life policies issued by mutual insurers may also pay annual dividends, which you can take as cash, use to reduce premiums, leave on deposit to earn interest or apply toward paid-up additions. Paid-up additions increase both the policy's cash value and death benefit over time without requiring additional underwriting.

Whole life insurance is the most expensive type of life insurance in MoneyGeek's analysis. A healthy 40-year-old man pays an average of $574 monthly for a $500,000 policy, but the rate locks in for life. If you want predictable, guaranteed growth and plan to keep the policy for decades, this is the category built for that.
Universal Life Insurance
Universal life insurance offers more flexibility than whole life insurance. You can adjust premium payments and death benefit amounts within certain policy limits. The cash value earns interest based on market benchmarks or a declared minimum rate.

Underfunding your policy by paying less than the amount needed to cover the cost of insurance can eventually cause the policy to lapse. This eliminates both the death benefit and the accumulated cash value.

Universal life insurance is best suited for people who want flexible coverage and are willing to actively monitor their policy over time.
Indexed and Variable Universal Life Insurance
Indexed universal life (IUL) and variable universal life (VUL) insurance tie cash value growth to market performance. IUL policies link returns to market indexes and include a floor that limits losses during downturns, though gains are usually capped too. VUL policies invest cash value in sub-accounts similar to mutual funds, which raises the growth ceiling but exposes you to full market risk, including real losses.

Both cost more than standard universal life, and projected returns depend on market assumptions that may not hold. These fit buyers who understand investment risk and can ride out volatility over a long time horizon.


Term Life	No	None	Lowest-cost coverage for a set period
Whole Life	Yes	Guaranteed, insurer-set rate	Predictable growth and dividends
Universal Life	Yes	Declared rate tied to market benchmarks	Flexible premiums and death benefit
Indexed/Variable Universal Life	Yes	Tied to market indexes or sub-accounts	Higher growth potential with more risk

WHAT LIFE INSURANCE ACTUALLY IS

Life insurance is a contract: you pay a premium, and the insurer pays a death benefit to your beneficiaries when you die. Every policy falls into one of two basic categories. Term life insurance covers you for a set number of years and pays nothing if you outlive the term. Permanent life insurance covers you for life and adds a second feature: cash value, a savings component built into the policy that grows over time. Cash value, not the death benefit, is what this guide means by “building wealth.”

How Does Cash Value in Life Insurance Grow?

Each type of permanent life insurance uses a different growth structure. In every case, a portion of the premium beyond the cost of insurance goes into a separate cash value account that grows on a tax-deferred basis.

Whole life policies grow at a guaranteed rate set by the insurer. Universal life policies credit interest based on a declared rate tied to market benchmarks. IUL and variable universal life (VUL) policies link growth to market indexes or investment sub-accounts, so returns can fluctuate and aren't guaranteed.

You can borrow against the accumulated cash value without triggering taxes, but unpaid loans reduce the death benefit and continue to accrue interest until repaid. If the insured dies with an outstanding loan balance, beneficiaries receive the death benefit minus the amount owed.

CASH VALUE EXAMPLE

A 30-year-old woman who buys a $500,000 whole life policy with premiums of $405 per month can build cash value over time as the policy matures and the insurer's costs are covered. By year 10, the policy could accumulate tens of thousands of dollars in cash value. The policy could gain further value by year 20, though the exact amount depends on dividend performance and how the policy is structured.

Actual cash value growth varies by insurer, dividend scale, fees and policy design, so these figures are illustrative, not guaranteed.

6 Strategies for Using Life Insurance to Build Wealth

Life insurance wealth strategies range from tax-free borrowing against accumulated cash value to estate planning tools that can transfer seven figures to heirs without probate.

1
Borrow Against Your Cash Value With a Policy Loan
You can borrow against the accumulated cash value at any time without a credit check or tax consequence, because a policy loan isn't classified as taxable income. Loan rates are usually 5% to 8% annually, depending on the insurer, and repayment is optional. Unpaid interest compounds and reduces the death benefit if the loan is never repaid.

Because policy loans don't require a credit check or a stated purpose, they aren't limited to business financing. Many policyholders use them for a home down payment or to pay off high-interest debt, and some tap them to cover a child's education costs. Regardless of purpose, unpaid interest compounds and reduces the death benefit until the loan is repaid.

Policy loans work well as a short-term liquidity tool or bridge financing strategy for business owners and high-income earners who want access to capital without triggering capital gains.
2
Earn Dividends on a Participating Whole Life Policy
Mutual life insurance companies, like Guardian, MassMutual and Penn Mutual, pay annual dividends when the insurer's financial performance exceeds its actuarial expectations. You can take dividends as cash, use them to reduce premiums, leave them on deposit to earn interest or apply them toward paid-up additions that permanently increase both cash value and the death benefit without additional underwriting.

Dividend payments aren't guaranteed, but several major mutual insurers have paid them continuously for more than 100 years.
3
Use Cash Value as Tax-Advantaged Retirement Income
Once a permanent life insurance policy has accumulated enough cash value, you'd be able to access funds in retirement through policy loans and withdrawals up to the policy's cost basis, the total amount you've paid in premiums, without triggering income tax. This approach, often referred to as a life insurance retirement plan (LIRP), works best for high earners who've already maxed out traditional retirement accounts such as a 401(k) and Roth IRA, which offer lower fees and more transparent return expectations for most investors.

Your policy's death benefit also passes income tax-free to beneficiaries, so the strategy can serve both retirement and estate planning goals at once. Withdrawals above your cost basis are taxable, though, and surrendering the policy can trigger taxes on any gains.
4
Minimize Estate Taxes With an Irrevocable Life Insurance Trust
An irrevocable life insurance trust (ILIT) holds a life insurance policy outside your taxable estate. It lets the death benefit pass to your heirs free of both income and estate taxes. You can't own the trust directly. Instead, a trustee manages the policy and distributes proceeds according to the trust's terms.

ILITs are most common among high-net-worth families, business owners with large buyout obligations and people who expect their estate to exceed federal exemption limits. Setting one up requires an estate planning attorney and can involve real legal and administrative costs.
5
Fund a Buy-Sell Agreement or Business Succession Plan
Business owners with partners often use permanent life insurance to fund a buy-sell agreement, a binding contract that requires surviving partners to buy out a deceased partner's ownership stake using the policy's death benefit. This helps prevent heirs from inheriting part of the business or forcing an unwanted sale or dissolution.

Whole life and universal life insurance are both commonly used for this strategy. Some buy-sell agreements have the business own the policy directly; others have individual partners own it instead. Funding a buy-sell agreement with life insurance provides a source of liquidity that installment payments or business reserves may not be able to guarantee.
6
Equalize an Inheritance Among Heirs
Illiquid assets, like a family business or a home one heir lives in, can't always be split evenly among multiple children. A life insurance death benefit gives you a way to close that gap. One heir keeps the house or the business. The policy's proceeds, paid income tax-free, go to the other heir as an equivalent share, so no one has to force a sale just to divide the estate fairly.

GIVE TO CHARITY THROUGH YOUR POLICY

Alternatively, a life insurance policy can direct money to a cause after you're gone. Naming a nonprofit as a full or partial beneficiary lets the organization receive death benefit proceeds free of income tax. You You keep access to the policy's cash value during your lifetime.

Transferring ownership of the policy to the charity outright removes your access to that cash value but can qualify you for a current-year tax deduction. Participating whole life policyholders can also donate their annual dividends to a chosen cause instead of taking them as cash.

What Are the Tax Advantages of Life Insurance for Wealth Building?

Life insurance offers four core tax advantages for wealth building, along with key limits that can reduce or eliminate those benefits.

Tax Advantages

Tax-deferred cash value growth: No annual taxes are owed on gains inside the policy.
Tax-free policy loans: Borrowing against cash value isn't classified as taxable income, so it doesn't create a tax liability.
Income-tax-free death benefit: The death benefit passes to beneficiaries income-tax-free under IRC Section 101(a).
Estate tax removal via ILIT: Placing a policy inside an irrevocable life insurance trust removes the death benefit from the taxable estate entirely, shielding it from federal estate taxes.

Key Limits

Modified endowment contract (MEC) status: A policy becomes a MEC when it's overfunded past IRS limits, which eliminates tax-free loan treatment and subjects withdrawals to income tax plus a 10% penalty before age 59½.
Surrender taxation: Surrendering a policy (cashing it in for its current value) triggers income tax on all gains above the cost basis.
Three-year ILIT rule: You must survive at least three years after transferring an existing policy into an ILIT. A transfer within three years of death pulls the proceeds back into the taxable estate.

Is Life Insurance a Good Investment?

Life insurance isn't the strongest standalone investment. It serves a purpose traditional investments can't: replacing lost income for the people who depend on you financially. Term life insurance is the most cost-effective option when your primary goal is financial protection.

Whole life and universal life policies build cash value over time, but their long-term returns are often lower than what many investors achieve through retirement accounts or diversified index fund investing. Financial advisors frequently recommend buying term coverage and investing the difference in premiums separately for this reason.

For higher earners who've already maximized tax-advantaged retirement accounts, the tax-deferred growth and estate planning benefits of permanent life insurance make it worth considering. The right approach depends on your income, financial obligations and long-term goals.

Who Should Use Life Insurance to Build Wealth?

Life insurance works as a wealth-building tool for some buyers and not others. Four profiles benefit most; three should skip the strategy.

Who Should Consider It

High earners: Household incomes above $200,000 who've maxed tax-advantaged retirement accounts gain access to additional tax-deferred growth.
Business owners with partners: Funded buy-sell agreements or key person coverage can be structured with certainty through a life insurance policy.
Large estate holders: An ILIT-held policy moves assets outside the taxable estate.
Parents or grandparents of young children: Buying a permanent policy early locks in the lowest possible rates and allows decades of compounding before the insured needs the coverage.

Who Shouldn't Use This Strategy

Cost-focused buyers: Anyone who needs maximum death benefit at minimum cost should buy a term policy. Whole life premiums for the same face amount run 13 to 17 times higher.
Buyers who haven't maxed retirement accounts: A 401(k) offers employer matching and lower-cost tax deferral that life insurance can't replicate.
Anyone likely to surrender within 10 years: Surrendering early almost always returns less than your total premiums paid.

Using Life Insurance To Build Wealth: Bottom Line

If you've already maxed out your 401(k) or IRA this year, get a whole life insurance quote and see what the numbers look like for your age and health. If you haven't maxed those accounts out yet, put your next dollar there first: life insurance built for wealth works better as a second step than a first one.

Cash value, dividends and policy loans build wealth while you're alive. The death benefit is what carries that wealth forward. An ILIT keeps it outside your taxable estate. A buy-sell agreement turns it into business continuity for your partners instead. And naming the right heirs as beneficiaries decides exactly who receives it, and how much they get compared with everyone else.

Life Insurance to Build Wealth: FAQ

Yes, but only with permanent policies like whole life, universal life and indexed universal life that accumulate cash value over time. Term life insurance provides no cash value and can't be used as a wealth-building tool.

Buy a permanent policy (whole life, universal life or indexed universal life), so premiums build cash value inside the policy on a tax-deferred basis. From there, most policyholders borrow against that cash value or take it as retirement income once they've reached their cost basis. For estate planning, place the policy inside an irrevocable trust to move the death benefit outside a taxable estate entirely. Term life insurance builds no cash value, so it can't be used this way.

Whole life insurance from a mutual insurer offers the most predictable wealth-building path because of its guaranteed cash value growth and potential for dividends. Indexed universal life can produce higher returns in strong markets but carries more risk and complexity.

Cash value growth is slow in the first several years because most of the premium covers the cost of insurance and insurer expenses. Most whole life policies take 10 or more years before the surrender value meaningfully exceeds total premiums paid, and the policy breaks even on a cash-in versus cash-out basis somewhere between years 15 and 20.

High-net-worth policyholders often lean on two tools: an irrevocable life insurance trust (ILIT) that moves a death benefit outside the taxable estate and a policy's cash value invested alongside other assets for tax-deferred growth. Business owners usually add a third: a buy-sell agreement that funds a partner buyout without forcing a sale. These strategies fit people who've already maxed out tax-advantaged retirement accounts and have an estate large enough to trigger federal estate tax.

Life insurance shouldn't replace a 401(k) or IRA for most people, because those accounts offer lower fees, clearer investment options and in the case of a 401(k), employer matching that provides an immediate return. Life insurance works as a supplemental retirement strategy only after tax-advantaged accounts have been fully funded.

For most people, this is a poor fit. Whole life premiums for the same death benefit are much higher than term life. Surrendering a policy within the first ten years usually returns less than the total premiums paid, since most of the early premiums cover the cost of insurance and insurer expenses rather than cash value. It also competes poorly against a 401(k) or IRA for anyone who hasn't maxed those out first. This does work for high earners who've already maxed tax-advantaged accounts and large estate holders using an ILIT or a buy-sell agreement.

About Patrick Bryant

Patrick Bryant is the Vertical Lead for Life and Health Insurance at MoneyGeek, where he researches insurance products, writes consumer guides and maintains the scoring methodologies behind our provider comparisons. He analyzed more than 50 life insurance carriers across multiple policy types, collecting thousands of quotes nationwide to evaluate rates, coverage options and underwriting factors. His methodologies are reviewed quarterly to reflect current market conditions and carrier data.

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