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Whole life insurance benefits at different life stages

Allen Wastler

Posted on September 29, 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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Describe the various features, besides protection, that whole life insurance offers.

Show how those features can come into play throughout your working years.

Note how whole life insurance can help with health care costs and legacy planning in later years.

Life insurance provides protection, specifically a death benefit that can help your loved ones cope with your loss. But one particular type — whole life insurance — can also serve as a versatile financial asset during your working years and into your retirement.


Whole life insurance offers features beyond protection that differentiate it from other types of insurance, particularly term life insurance or the kinds of universal life insurance typically offered in employer benefit programs. The result is a combination of benefits that include protection, accumulation, guarantees, and income tax advantages.

“Whole life insurance can be used to protect against the potential loss of your income through your working years and protect assets throughout retirement,” noted Jeffrey R. Rotman, a wealth management advisor at Rotman and Associates in Boca Raton, Florida.

Here’s a look at how those features apply to different life stages.

Your working years — accumulation

Throughout your career, as your family and savings grow, whole life insurance can help with pre-retirement protection and tax-efficient accumulation.

In terms of protection, whole life insurance is a permanent policy, providing a guaranteed death benefit throughout your life. By contrast, term insurance, a lower-cost life insurance option, often provides protection for a set number of years. And while some term life insurance policies can be converted to permanent life insurance, it comes at a higher price.

Which is another important feature of whole life insurance — premiums are guaranteed at a constant level, and sometimes for a certain number of years or to a certain age, like age 65. With other types of permanent life insurance, the level of premiums can fluctuate.

At the same time, whole life insurance builds cash value, which provides a way of accumulating funds on a tax-advantaged basis. As you pay premiums, that cash value increases on a tax-deferred basis at a growth rate that is guaranteed by the carrier.

How fast the cash value grows depends on how quickly premiums are paid.

  • Some policies can be paid up with as few as 10 premium payments, and so build cash value relatively quickly.
  • Others use a pay-to-age-100 premium schedule, and so are slower to build cash value.

Additionally, any dividends paid by the insurance carrier on participating policies can also be used to increase both the life insurance protection and the cash value.1 (Related: What goes into whole life insurance dividends?)

Building cash value in a whole life insurance policy can help supplement your overall savings plan. Also, you can borrow from your life insurance cash value for any purpose, like paying college tuition or covering an emergency expense. And the loan is generally income tax-free up to the amount you’ve paid in premiums.

But there can be consequences if you tap into a whole life insurance policy’s cash value. Borrowing against life insurance cash value increases the chances that the policy will lapse, reduces the cash value and death benefit, and may result in a tax bill if the policy terminates before the death of the insured. (Related: Treat cash value with care)

“Having this kind of protection through your working years — that is protecting the income capacity of the household — has many advantages,” said Rotman. “As cash value increases in the policy, it can help overcome the unknowns of whether you can access funds when you need them, whether it be for an emergency, house repair, business need, college tuition, or even a car for a student. And, as the cash value of a life insurance policy is not a college financial aid disclosure requirement, there is still the potential for need-based financial aid.”

Income options in retirement

The cash value feature in whole life insurance can be a useful tool in retirement, as well.

Markets go up and down, which means the value of retirement accounts and equity investments can fluctuate. This can present challenges for people depending on those investments for an income stream in retirement.

That’s because taking money from an equity-based retirement account, such as a 401(k) or IRA, during a market downturn will reduce the amount of principal that returns will be based on in the future. That degradation in compounding will likely be particularly troublesome if it happens in the early retirement years. Indeed, one or two years of negative returns early on in retirement can have a significant and damaging effect on the ability to continue withdrawing the same level of income in later retirement years. (Related: Understanding sequence of returns risk)

“The cash value can be utilized by the policyowner for income during market downturns to allow investment assets to recover losses before continuing withdrawals,” said Rotman.

Indeed, many people specifically plan to use the cash value component of a whole life insurance policy as a ready reserve of funds for inevitable market pullbacks, allowing time for invested funds to recover. And, as mentioned earlier, cash value can be accessed on a tax-advantaged basis. (Related: How life insurance can help in retirement)

Additionally, in the case of retired couples, having a paid-up life insurance policy in place that will pay a tax-free death benefit to a surviving spouse can lessen the worry over how much the couple spends out of retirement funds. Further, death benefit proceeds can help supplement pensions, annuities, and Social Security payments that have been reduced to a surviving spouse.

Senior health needs and legacy planning

Health care costs become a significant concern for many people as they get older. As a result, some look at long-term care (LTC) insurance. But there can be some hesitancy, since many people wonder if they will ever use it.

“Traditional, or stand-alone, long-term care policies are more like term insurance,” said Doug Collins, a financial planner at Fortis Lux Financial in New York City. “You pay the premium, and if you need long-term care, it pays a benefit. But if you don’t need long-term care there is no residual value. That’s like term life insurance — you pay the premium, but — hopefully — you outlive the term, and the policy expires, but there’s no remaining value. But now more companies are attaching long-term care riders to whole life policies or creating hybrid life/LTC policies. And these have lasting value.”

The purchase of a long-term care or chronic illness rider on a whole life insurance policy allows some of the potential death benefit to be redirected to health care expenses, should the need arise. In contrast, hybrid polices are also structured to combine life insurance and long-term care benefits. With such policies, taking advantage of the LTC benefits will reduce the death benefit and cash value available in the overall life insurance policy.

“If your main objective is a high death benefit and more cash accumulation, a whole life insurance policy with a long-term care rider usually makes the most sense,” said Collins. “If your main goal is to protect against the cost of long-term care but also have life insurance protection, hybrid policies tend to have better LTC benefits.”

How such riders work and are applied varies from carrier to carrier. Many people opt to talk about the options with a financial professional. At the same time, many also discuss how life insurance can help with estate planning and the management and distribution of assets.

Passing on an estate can involve numerous issues, depending on your personal circumstances and the amount of assets at hand. The strategic use of life insurance can potentially help. (Related: 6 ways life insurance can help with estate planning)

And, of course, life insurance proceeds can help your loved ones handle your final expenses and funeral costs. (Related: What happens to your debts when you die)


A whole life insurance policy is a valuable life stage tool in addition to a measure of security for your family and loved ones.

Its cash value accumulation offers the ability to supplement your overall savings plan on a tax-advantaged basis. It also allows access to cash value for supplemental retirement income should market conditions turn negative. And it can offer a measure of long-term care protection should the need arise.

Of course, how these benefits come together depends on the specific terms of a whole life insurance policy, and those specifics can differ from insurance carrier to insurance carrier. That’s why it’s important to look at options offered by different life insurance companies. It is also important to consider the insurance carrier itself. An insurance company’s history, structure, and financial strength can all play a factor in how well a whole life insurance policy fits into an individual’s financial plan.

A financial professional can help sort out which life insurance carrier’s whole life insurance offerings may best connect with your own situation.

Discover more from MassMutual …

How to ‘ladder’ life insurance with family changes

Is group life insurance enough?

How survivorship insurance works

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


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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.

Life insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual) and its subsidiaries, C.M. Life Insurance Company (C. M. Life) and MML Bay State Life Insurance Company (MML Bay State), Springfield, MA 01111-0001. C.M. Life and MML Bay State are non-admitted in New York.