Whole life insurance: Balancing protection and accumulation

Allen Wastler

Posted on November 08, 2021

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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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 — can also serve to accumulate 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 funds — in the form of 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 solution to many things traditional market-based investments cannot do,” said Doug Collins, a financial planner at Fortis Lux Financial in New York City. “It can provide guarantees of death benefit, cash accumulation, and, in some situations, long-term care benefits to name a few. It also can be used as a source of tax diversification later on in the policy once the cash value has accumulated sufficiently. It should be noted, however, that whole life insurance is not for everyone. You need to realize that the premium is more rigid than initiating a savings or investment plan that you can modify or stop 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 funds 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 funds. (Related: Understanding cash value)
  • The opportunity to earn dividends. Dividends for 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.1 (Related: What goes into dividends)
  • The ability to borrow from cash value. The funds built up in a policy can provide a reserve 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 $21,833. After 10 years, this policy would have a cash value of at least $173,588.
  • For a policy paid annually till he reached age 100, the premium payment would be $7,790. After 10 years, the 100-pay whole life insurance policy would have a cash value of at least $45,450.

The cash value could be greater, depending on the performance 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 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 asset accumulation and tax diversification. 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



Dividends 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.

Tapping into the cash value of a life insurance policy reduces its 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.

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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.