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Whole life insurance: Balancing protection and accumulation

Allen Wastler

Posted on October 10, 2023

Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
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Note that beyond protection, whole life insurance offers ways to accumulate cash value.

Point out three other significant features of whole life insurance in addition to cash value accumulation.

Offer a comparison between two different whole life policies to illustrate the difference in guaranteed cash value accumulation.

Most people understand that life insurance is a way to protect family and loved ones in the event of an untimely passing. Less well known is the fact that life insurance — particularly whole life insurance —offers a combination of protection, cash value accumulation, guarantees and income tax advantages that differentiates it from most other financial products. The cash value accumulates on a tax-deferred basis, and may later be used as a reliable source of funds.

That means, depending on the terms of the policy, a policyowner can use whole life insurance to strike a balance between protection and accumulation that meets their individual goals.

For instance, someone could choose a whole life insurance policy that aims to build cash value —relatively quickly along with immediate protection. Or, by contrast, that person could opt for a whole life insurance policy that establishes immediate protection with accumulated funds building up over a longer period of time. (Life insurance calculator)

More specifically, some whole life insurance policies can be paid up with as few as 10 premium payments, and so build cash value relatively quickly. Of course, the premiums for such a policy are substantially larger.

Other kinds of whole life insurance policies extend premium payments over a longer period, like the time it would take for a policyowner to reach an age of 100. That type of pay-to-age-100 premium schedule builds cash value more slowly, but the premiums are relatively smaller compared with the guaranteed death benefit that is immediately in place.

“Whole life insurance is a great option for many things traditional financial vehicles cannot do,” said Doug Collins, a financial planner at Fortis Lux Financial in New York City. “It can provide guarantees of death benefit, cash value accumulation, and, in some situations, long-term care benefits to name a few. It can also be part of a financial strategy and help you be more tax efficient. A policyowner can later access the cash value on a tax-deferred basis once sufficient funds have accumulated in the policy1. It should be noted, however, that whole life insurance is not for everyone. You need to realize that the premiums must be paid in accordance with the policy, you can’t stop payment at any time.”

To understand how the differences in accumulation and protection can be balanced, it’s important to understand the basic features of whole life insurance.

Whole life insurance defined

Most whole life insurance policies provide four basic features. These are:

  • Guaranteed lifetime protection. This allows you to protect loved ones or set legacy goals throughout your life rather than just for the specific, set periods prescribed by term insurance. In some circumstances, the initial level of the death benefit — the beginning face value — can grow over time. (Related: Why you need life insurance protection)
  • Tax-deferred cash value accumulation. As you pay premiums, cash value in a whole life insurance policy grows. And those values grow on a tax-deferred basis at a rate guaranteed by the carrier that isn’t affected by market conditions. This is how a whole life insurance policy accumulates cash value. (Related: Understanding cash value)
  • The opportunity to receive dividends. Dividends for eligible participating policies can also help build cash value, adding to the accumulation opportunities of whole life insurance. Dividends can also be used to increase insurance protection, or help reduce out-of-pocket costs for a policy.(Related: What goes into dividends)
  • The ability to borrow from cash value. The cash value built up in a policy can provide an alternative source of funds for things like college tuition or supplemental retirement income.2 Or, if left untouched, they can help increase the death benefit. (Related: Treat cash value with care)

How these features interplay depends in large part on the particular policy’s premium schedule.

Accumulation comparisons

Comparing two different kinds of whole life insurance policies can illustrate the difference in accumulation offered.

Take the example of a 55-year-old nonsmoking man in excellent health looking for a whole life insurance policy with a $250,000 death benefit:

  • For a policy paid annually over 10 years, the premium payment would be $22,130. After 10 years, this policy would have a guaranteed cash value of $173,588.3
  • For a policy paid annually till he reached age 100, the premium payment would be $8,905. After 10 years, the 100-pay whole life insurance policy would have a guaranteed cash value of $46,588.4

The cash value could be greater, depending on the payment of a life insurer’s possible dividends. And, if left untouched over the years, that could add significantly to the death benefit.

So, if the hypothetical policyowner above was more inclined to establish immediate protection for his family, the lower payments and immediate $250,000 death benefit protection of the 100-age pay policy might make more sense. And it would provide some accumulation over time.

But, if rapid accumulation of cash value is more of a priority, the 10-pay policy might make more sense, while also providing protection for loved ones.

Of course, there are other choices between these two examples. And, depending on age and other circumstances, premiums could be vastly different. (Related: How much does life insurance cost?)

Additionally, riders can be attached to whole life insurance policies that can offer a range of additional benefits, like a source of funds for long-term care or additional insurance coverage in later years. (Related: Understanding riders)

A MassMutual financial professional can help lay out the options, generate illustrations, and discuss ways that they might apply to an individual situation. (Need a financial professional? Find one here)

In the end, the ability to strike this balance makes whole life insurance a versatile financial asset that offers not only protection, but also the opportunity for cash value accumulation and can help with tax diversification of income sources. Where the balance falls depends on the particular whole life policy chosen.

Discover more from MassMutual …

Understanding different types of permanent life insurance

What premium plan will work for you?

Whole life insurance explained

This article was originally published in September 2021. It has been updated.


1Dividends aren’t guaranteed. The amount of the dividend and the dividend payout itself are subject to change, depending on the operating performance experience of the insurance carrier in a given year. Dividends are primarily the result of favorable operating experience with respect to claims (death benefits paid), investment results, and expenses.

2Accessing the cash value of a life insurance policy reduces its cash value and death benefit and increases the chance the policy will lapse. If a policy lapses with an outstanding loan in excess of the cost basis, the excess is taxable.

3Based on a MassMutual Whole Life 10 Pay policy dated 9/13/2023.

4Quote (9/13/2023) Based on a MassMutual Whole Life 100 policy dated 9/13/2023.

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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.

Whole Life Legacy series policies ((Policy Forms: MMWL-2018 and ICC18-MMWL in certain states, including North Carolina)/ (MMWLA-2018 and ICC18-MMWLA in certain states, including North Carolina)) and MassMutual Whole Life series policies on the digital platform (Policy Forms: WL-2018 and ICC18WL in certain states, including North Carolina) are level-premium, participating, permanent life insurance policies issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001.)