How to Use Life Insurance to Accumulate Cash

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Contributor, Benzinga
December 10, 2021

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As a smart financial consumer, you buy life insurance to protect yourself and your family against catastrophic events. Life insurance is a financial backstop that protects the beneficiaries against loss of income or the payment of final expenses after the death of the policyholder. Some permanent life insurance policies offer a cash value accumulation, which can be used for many purposes.

Unsure if this type of life insurance is best for you? Use Benzinga’s guide to find out more.

What is Cash Value Life Insurance?

Life insurance is a contract between you as policyholder and the insurance company. The contract stipulates that the insurance company must pay a predetermined amount (the benefit) to the person or persons you choose to receive it (the beneficiary or beneficiaries). The policyholder in turn agrees to pay monthly premiums for an agreed-upon period of time. The policyholder is the owner of the policy, which can be terminated if monthly premiums are not maintained.

That’s the dry, boring definition of life insurance. The more heartwarming description is that it's an investment by the policyholder to make sure, just in case anything happens to them, that their loved ones will get taken care of.

The 2 basic types of life insurance, permanent (whole, universal or variable life) and time-limited (term life) vary to some degree. Term life insurance only lasts as long as the policy. The cheaper of the 2, it accumulates no cash and has no value other than the death benefit. For our purposes, we’ll be talking about the different types of permanent life insurance, sometimes known as cash value life insurance.

The definition of life insurance that most people know is that someone dies and someone else receives financial compensation. Cut and dried. But some types of life insurance policies do much more than just pay out death benefits. A permanent life insurance policy pays in life as well as in death.

Permanent life insurance  policies are known as living benefits, and they’re available to policyholders who may need the money before they die. Many policies allow the owner to accelerate the death benefit if they’re disabled or if they need to pay for medical bills or long-term care.

In some circumstances, permanent life insurance policies can serve as good investment vehicles, as well. These types of policies include:

  • Whole life
  • Universal life
  • Variable universal life

While whole life includes a lifetime of protection at a guaranteed rate, universal life offers a separate, tax-deferred cash savings element as well. This benefit is known as cash accumulation.

What is Cash Accumulation with Life Insurance?

When referencing life insurance, cash accumulation refers to a personal cash fund you can make contributions to on a tax-free basis. Contributions to your life insurance policy in the form of cash deposits earn tax-deferred interest that you can withdraw at any time, for any reason. The only stipulation is that your life insurance has a cash accumulation fund.

Cash accumulation funds are used for:

  • Retirement
  • Home repair
  • Vacations
  • New cars
  • Emergencies

In fact, you can use the money for anything you want. The advantage of parking your money in a life insurance policy is not only that it's tax-deferred, it gives you a death benefit as well. 

This cash accumulation vehicle serves as its own form of living benefit for the owner. The policyholder can use the money for all the same reasons as any living-benefit policy — to pay for medical expenses and long-term care, or in case of disability.

Why Use Life Insurance for Cash Value Accumulation?

Why use a life insurance policy to accumulate cash? When you accumulate cash in a life insurance policy, not only is your family taken care of in case something happens to you, you build cash value as well. As well, you have access to your cash, for any reason you want, and it’s all tax-deferred. Permanent life insurance policies are so much more than just the death benefit — they can act in part as investment vehicles for accumulating cash.

How to Accumulate Cash Value with Life Insurance

A permanent life insurance policy naturally accumulates cash. But how much? The cash value you accumulate in your life insurance policy depends in part on your actions and the investment choices the plan makes. While many people don’t make the most of the cash value in their life insurance policy, you can by overfunding it — by more than even the original value.

If you have a universal life policy, you can put as much money as you want toward your coverage. While both whole and universal life insurance policies have a cash value, a universal life policy has a separate, cash value component.

One good part is that you can withdraw money anytime you want, tax-deferred. Remember, universal life is still an insurance policy, even if it has 2 components. The more you contribute to the cash value, the less the death benefit, and vice-versa.

The best feature of the universal life policy is that its maturity date often begins at age 85 and lasts as long as age 121. That’s right, if you outlive your life insurance policy, you receive all the benefits — even if you’re still alive.

All of these are great reasons to buy a life insurance policy, and we didn’t even mention that the death benefit will be tax free for your beneficiary.  

Are There Alternatives to Permanent or Cash Value Life Insurance?

We’ve spent the whole time talking about permanent life insurance because that’s the only kind that accumulates cash value. The other kind, term life, doesn’t have a cash value. Term life is much cheaper than whole life and lasts just for the term of the policy. If you’re looking to protect your family for less, term life is the way to go.

Best Cash Value Life Insurance Carriers

If you’ve decided by now that you should get a life insurance policy, or at least you’d like to find out more get a quote below.

Accumulate Cash Value with Life Insurance and Protect Your Family Altogether

There’s no reason you can’t let your money grow and protect your family at the same time. The cash component option of a permanent life insurance policy is a great way to accumulate cash and lock in a death benefit at the same time. has a verifiable treasure trove of life insurance articles for you to choose from; visit our site to learn more.


Benzinga crafted a specific methodology to rank life insurance. To see a comprehensive breakdown of our methodology, please visit our Life Insurance Methodology page.