Did you know that a whole life insurance policy can actually help you make money? It\u2019s true\u2014and it\u2019s a strategy sometimes used by those with higher incomes and net worths.<\/p>\n
For those seeking life insurance coverage, a term life insurance policy is typically the more affordable and simpler choice. Both Sam and I opted for matching 20-year term life insurance policies through Policygenius<\/a><\/strong> two years after our daughter was born. If we were younger, we would have considered a whole life policy.<\/p>\n However, if you\u2019re a high-income earner searching for ways to grow your wealth beyond traditional investment accounts, whole life insurance is worth considering. Once you\u2019ve built a solid financial foundation and are already maxing out your 401(k)<\/a>, IRAs, and other tax-advantaged accounts, whole life insurance could be another tax-efficient way to make money and diversify your investments.<\/p>\n <\/p>\n Before we dive in, let\u2019s quickly clarify the difference between a whole life insurance policy and a term life insurance policy.<\/p>\n A whole life insurance policy is like owning a home with a mortgage. It often costs more upfront compared to renting, but over time, you build equity\u2014known as \u201ccash value\u201d in the context of whole life insurance.<\/p>\n Term life <\/a>insurance<\/a>, on the other hand, is like renting a home. It\u2019s typically less expensive and gets you want you want, namely shelter. But you don\u2019t accumulate any equity. Once the term expires, you\u2019re left without coverage unless you renew, much like moving out when a lease ends.<\/p>\n After 20+ years of owning a home, you\u2019ve built tremendous equity, which can be accessed through a loan or by selling the property. But after 20 years of renting, you\u2019re left with no equity\u2014just the memories of living there.<\/p>\n Critics of whole life insurance argue that people can save and invest the cost difference to achieve higher returns, which is true in theory. However, the reality is that few individuals consistently save and invest the difference over many years. Forced savings<\/a> is a powerful wealth-builder, and one of the reasons why the median net worth of homeowners is 25-40X greater than the median net worth of renters.<\/p>\n Whole life insurance provides lifelong insurance coverage and the added benefit of growing cash value. The policy holder can borrow against their cash value, withdraw cash (although it may reduce the death benefit), and use it to fund premiums in later years. The holder can\u2019t take the cash value with them when they die nor do their beneficiaries get the cash value. But holders get peace of mind and liquidity while they are living.<\/p>\n Let\u2019s dive into seven ways you can actually make money with a whole life insurance policy.<\/p>\n Whole life insurance<\/a>\u00a0works best as a savings and investing vehicle over the\u00a0long-term<\/em>.\u00a0After all, the \u201cwhole\u201d in whole life insurance is for your whole life. If you\u2019re already in your mid-40s or older, it may be too expensive and you may not have enough time to build up your cash value.<\/p>\n These policies take time to build significant cash value\u2014often years, if not decades. That means the sooner you buy, the more time your policy has to grow and accumulate value. The younger you are when you purchase a whole life policy, the more opportunity it has to increase in cash value and the cheaper it is. Ideally, the best age to get life insurance<\/a> is about age 30. It\u2019s still highly affordable then, and after age 30, life tends to get a lot more complicated.<\/p>\n Some whole life policies offer an indexed feature where cash value growth is linked to a financial index, like the S&P 500, without being directly invested in the market. Like some structured notes, this whole life policy offers upside potential with downside protection (e.g., growth capped at 8%, but losses are limited to 0%).<\/p>\n Take a look at this chart to see how both the cash value and death benefit can grow over time.<\/p>\n Scenario:<\/strong> At age 30, you purchase a $1 million whole life insurance policy with annual premiums of $10,000. The annual premium is likely $9,000 more than a term life insurance premium policy. <\/p>\n Cash Value Growth:<\/strong> After 20 years, you\u2019ve paid $200,000 in premiums. Assuming a 5% annual return (through cash value accumulation and dividends in a mutual company policy), the policy’s cash value grows to approximately $270,000.<\/p>\n Financial Outcome:<\/strong><\/p>\n If you’re looking to accelerate the cash value growth of a whole life insurance policy, opting for one with higher dividends is key. Maybe you can also lock in a higher guaranteed interest component, which is more commonly offered during a higher interest rate environment. <\/p>\n The best way to achieve this is by choosing a mutually traded insurance company<\/a>. These companies are structured differently than publicly traded insurers. While stockholder-owned companies prioritize their investors, mutual companies are owned by the policyholders. This means you stand to benefit the most.<\/p>\n With a mutual insurance company, the growth of the company itself, along with its competitive dividend rates, helps drive up the cash value of your policy over time. Thanks to the power of compound interest, these high dividends can significantly increase your return, giving you more financial leverage as the years go on. Some examples of mutual companies include Northwestern Mutual, MassMutual, New York Life, Principal Life Insurance, and Guardian Life.<\/p>\n Scenario: You purchase a $500,000 whole life policy at age 40 from a mutual insurance company with an annual premium of $7,500.<\/p>\n Dividends: <\/strong>The policy pays annual dividends averaging 4%. After 25 years, you’ve paid $187,500 in premiums.<\/p>\n Once a whole life insurance policy has built up significant cash value, it might be tempting to cash out. But think carefully before you make that move. Canceling your policy can trigger taxes on the amount you withdraw, significantly reducing the gains you\u2019ve earned over the years. Then, of course, is the loss of life insurance coverage and the death benefit to your beneficiaries.<\/p>\n Once your cash value has grown enough, you can take a loan against it instead of cashing out if you need funds. This allows you to access cash, without losing the policy or facing tax penalties. Plus, you can replenish the loan later when it\u2019s more convenient for you. This is called the Infinite Banking<\/strong> concept.<\/p>\n This strategy uses the whole life policy as a personal financing system:<\/p>\n \u2022 Borrow from the policy to fund investments.<\/p>\n \u2022 Repay yourself with interest, effectively keeping your money \u201cin-house\u201d while growing the cash value.<\/p>\n Common Uses:<\/strong><\/p>\n \u2022 Real estate investments<\/a>.<\/p>\n \u2022 Tax-advantaged growth while recycling capital.<\/p>\n Keep in mind, however, that if you do take out a loan, it will accrue interest. If you decide not to pay it back, the amount you owe, plus any interest, will be deducted from your death benefit when the policy is paid out to your beneficiaries. <\/p>\n Borrowing from your policy can be a smart move if you use the cash in a way that earns more than the loan\u2019s interest rate. For example, you could conceivably invest the money in the stock market or in a private real estate<\/a> that could generate much more than the interest cost overtime. Of course, you could also lose money as well so be careful. It\u2019s important to consider the long-term impact on your policy\u2019s value.<\/p>\n The cash value of a whole life insurance policy grows tax-deferred, but there are tax traps you need to avoid. If your policy is overfunded and fails the 7-pay test<\/a> (see below), it could become a Modified Endowment Contract (MEC)<\/strong>. Once classified as an MEC, any withdrawals will be taxed as ordinary income\u2014and if you’re under 59 \u00bd, you’ll also face a 10% penalty. What\u2019s more, once a policy becomes an MEC, its status can never be reversed.<\/p>\n To avoid these tax pitfalls, don\u2019t rush to overfund your policy in an effort to speed up cash value growth. With whole life insurance, slow and steady is the key to maximizing benefits.<\/p>\n If used properly, a whole life policy can grow cash value without triggering taxes, allowing you to fully take advantage of its living benefits.<\/p>\n The 7-pay test<\/strong> is a key IRS rule used to determine whether a whole life insurance policy has become a Modified Endowment Contract (MEC)<\/strong>. It essentially limits how much you can contribute to a policy in the first seven years in order for it to still be considered a \u201clife insurance\u201d policy for tax purposes, rather than a \u201cinvestment\u201d or \u201csavings\u201d vehicle.<\/p>\n Manage your premiums carefully, especially in the early years, to avoid surpassing the 7-pay limit and accidentally converting your policy into an MEC.<\/p>\n One of the major advantages of whole life insurance is that it\u2019s a permanent policy\u2014meaning it never expires. Unlike term life insurance, which only lasts for a set period, a whole life policy guarantees a death benefit no matter when you pass, whether it’s in 20, 50, or 80 years.<\/p>\n For wealthy policy holders, this can be especially valuable if you anticipate you or your heirs may face federal estate taxes. Currently, estates valued above $13.99 million per person (2025 estate tax limit for individuals) are subject to federal estate taxes of about 40%. For married couples, that threshold rises to $27.98 million. However, these lofty estate tax exemption levels are set to expire at the end of 2025 to roughly $6.8 million, adjusted for inflation, unless Congress takes action. There are also state specific estate tax exemptions to consider as well.<\/p>\n If your estate exceeds these thresholds at the time of your passing, your life insurance payout can be used to cover the estate taxes<\/em>. This ensures the estate\u2019s other assets (e.g., real estate, investments) don\u2019t need to be sold.<\/p>\n Example: A $20 million estate owes $4 million in taxes. A $4 million death benefit from the whole life policy can cover this liability without liquidating family assets or your heirs having to pay out of pocket.<\/p>\n But to ensure this process goes smoothly, please create a death file<\/a> and be sure to leave clear instructions with your attorney so your beneficiaries understand the purpose of the funds.<\/p>\n A large life insurance payout can increase the value of your estate, potentially pushing it over federal limits and subjecting it to estate taxes.<\/p>\n To avoid this, you can reduce the taxable value of your estate by placing your life insurance policy in an irrevocable life insurance trust<\/a>. This strategy allows the policy\u2019s death benefit to be excluded from your estate\u2019s valuation, ensuring that the money you leave to your family doesn\u2019t inadvertently increase your taxable estate.<\/p>\n Keep in mind that transferring wealth through a trust comes with its own set of tax implications. It\u2019s essential to work with an experienced estate planning attorney to set up the trust properly and avoid any unintended tax consequences.<\/p>\n Making money from your whole life insurance policy can be complicated. One wrong move and you could be liable for taxes or impede on your financial goals.\u00a0That\u2019s why you should talk to someone who can help you map out how to best utilize your policy. A well-executed policy leads to high returns and more money in the bank.<\/p>\n A certified financial planner can make sure you’re maximizing your policy\u2019s cash value. And they can do so without jeopardizing the reason you probably got a policy in the first place\u2014to pay out to your family when you die.\u00a0<\/p>\n An estate planning attorney<\/a> can also handle the intricacies of properly mapping out your estate plan. They can ensure that your life insurance policy complements it. Estate planning attorneys are specialized in transferring your assets after you pass. They will guide you through the end-of-life planning process.<\/p>\n After reading this post. I hope you can now better understand how a whole life insurance can make you money and protect your family. It\u2019s complicated, which is one of the reasons why people don\u2019t even bother to explore it, even though there are plenty of other reasons to get a whole life policy<\/a>, e.g. you have disabled children. Term life insurance, although simpler and less expensive, doesn\u2019t doesn’t help the policy holder build wealth directly.<\/p>\n In retrospect, Sam and I probably should have considered whole life insurance policies in our late 20s or early 30s, given how our finances have turned out. By now, we could have built significant cash value with permanent life insurance coverage at a fixed low premium. We wouldn\u2019t have had to stress about getting medical exams and hunting for new policies at higher rates. Nor would we have experienced a stressful liquidity crunch<\/a> after purchasing our home.<\/p>\n The challenge, however, is the higher monthly premiums for a whole life policy. They are significantly more expensive than a term life policy that offers the same coverage for a much lower cost. When we’re younger, it’s hard enough to make ends meet, let alone think about how to protect our unborn children that may never come.<\/p>\n So, if you’re still relatively early in your career and feel optimistic about your future and America’s economic prospects, it\u2019s worth looking into a whole life insurance policy. There\u2019s no downside to comparing quotes to a term policy and planning out what your financial future might look like.<\/p>\nDifference Between Whole Life Insurance And Term Life Insurance<\/h2>\n
Ways to Earn Money with Whole Life Insurance<\/h2>\n
1. Buy Early for Maximum Growth<\/h3>\n
![\"Make](\"https:\/\/i2.wp.com\/financialsamurai.com\/wp-content\/uploads\/2021\/10\/Make-Money-Whole-Life-Insurance.jpg\")
<\/a><\/figure>\nExample Of How To Make Money From A Whole Life Insurance Policy<\/h3>\n
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2. Choose a Whole Life Policy with Higher Dividends <\/h3>\n
Example Of How To Make Money With A Whole Life Policy: Leveraging Dividends<\/strong><\/h3>\n
Financial Outcome<\/strong>:<\/h3>\n
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3. Borrow Against Your Policy Instead of Cashing Out<\/h3>\n
Infinite Banking Concept<\/strong><\/h3>\n
4. Watch Out For Tax Traps\u00a0<\/h3>\n
What is the 7-pay Test?<\/h3>\n
Here’s how it works:<\/h3>\n
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What happens if the policy becomes an MEC?<\/h3>\n
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5. Use the Benefit for Estate Taxes\u00a0<\/h3>\n
6. Reduce Your Taxable Estate with a Irrevocable Life Insurance Trust (ILIT)<\/h3>\n
![\"\"](\"https:\/\/i2.wp.com\/financialsamurai.com\/wp-content\/uploads\/2025\/01\/IMG_6640.gif\")
<\/figure>\n7. Work with a Certified Financial Planner and Estate Planning Lawyer<\/h3>\n
Whole Life Insurance Can Help You Build Wealth<\/h2>\n