Question: Is whole life insurance a good investment for retirement?

Answer: If you are considering using Whole Life Insurance as part of your retirement planning (and you should), there are 6 critical rules you must follow to get the tax benefits when it comes to taking your money out.

If you’ve always thought whole life insurance is the same with every company except for the rates, you’re mistaken. There are certain things you must verify before you even consider the rates.

Many of us consider focusing on the accumulation stage in our retirement planning when we should be focusing on the distribution stage. It’s not about how much you have, it’s about how much you can keep.

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We believe that a LIRP (life insurance retirement plan) makes a lot of financial sense when planning for retirement. Especially if you can max out traditional retirement products (IRA, 401k) and you want to keep your earnings rather than pay taxes on them.

Using Whole Life insurance for retirement planning can not only provide you with risk-free cash accumulation, but it’ll also provide you with a tax-exempt income once you retire. But you can’t use just any whole life insurance product. It must meet the following six criteria.


1. The policy must be purchased from a Mutual Insurance Company


When you are shopping for whole life insurance, you’ll have the option to buy from a Stock insurance company or a Mutual insurance company.

Always choose the Mutual company and here’s why:

Stock insurance companies are owned by stockholders and profits are divided up among them. This is fine if you are purchasing a non-participating insurance policy (we’ll talk about that next) but not if you are relying on dividends to help with cash accumulation.

Mutual insurance companies are owned by the policyholders and the profits are divided up among them in the form of dividends.

Even if a stock company is offering better rates or higher minimum interest on the cash value account, not participating in dividend payments should be a deal-breaker for anyone looking to accumulate cash for retirement.

If an individual is just looking to purchase cheap life insurance and not concerned about cash accumulation, they should probably look at term insurance or guaranteed universal life.


2. The Whole Life Policy must be a Participating Policy


This rule is very straightforward if you are looking at a mutual insurer in the first place. Simply put, a participating policy will earn dividends and a non-participating policy will not.

Earning annual dividends is a critical factor for accumulating cash in your policy and without them, you should probably be considering a different type of life insurance policy altogether.

To determine possible dividend earnings over time, the insurance company will normally include a column in the policy ledger to illustrates “projected dividends to be paid” because the insurer will never guarantee a dividend payment.

Most insurance professionals will present an illustration that contains guaranteed and non-guaranteed values. Typically the non-guaranteed values are based on projected dividend payments.

Most life insurers who are proud of their dividend record will make a point of providing historical dividend payment data along with the illustration.



Having a paid-up additions rider is critical to accumulating cash in your life insurance retirement plan.

This rider provides for the insurance to place dividend payments directly in your cash account where it will earn the guaranteed interest stated in the contract and increase your dividend earnings in subsequent years. These interest earnings and increased dividend earnings are what drive your cash accumulation process.

And, while you’re discussing paid-up additions with the agent, make sure that the rider is flexible so you’ll have the ability to change things to accommodate life events that are likely to happen over your lifetime.


4. The Whole Life Policy must offer a Waiver of Premium and Accelerated Death benefit Rider


Disability happens and is typically financially devastating to the individual affected. Instead of taking the chance of losing your retirement plan because you’ve become disabled and cannot work, make sure you have the option to purchase a disability waiver so the insurer will waive premiums while you’re not working.

Additionally, if you are diagnosed with a critical or chronic illness, the Accelerated Death Benefit rider provides for the insurer to advance you a large percentage of the death benefit so that you can deal with the tremendous expenses that typically accompany a critical or chronic illness.


5. Make sure the insurance company is a Non-Direct Recognition Company


Non-Direct recognition is critical because it affects your annual dividend payment. If you use a direct-recognition company, any outstanding loans against your policy are “recognized” by the company and reduce the amount of your dividend payment.

This means that policyholders without outstanding loans against their policy will receive a larger share of the dividend payout than those who have outstanding loans.

A Non-Direct Recognition company does not recognize outstanding loans against the policy and will pay the same amount to policyholders regardless of outstanding loans.

Since dividends are a critical factor in accumulating cash in your policy, it makes perfect sense that you decline to do business with a company that allows your dividends to be impacted because you’ve taken out a collateralized loan and pay interest on it.


6. You must select a Highly-Rated Life Insurance Company


In simple terms, your insurance contract is simply a promise to pay financial benefits in exchange for a premium. Since your contract is a Whole Life Insurance policy that you are electing to use to accumulate cash over a lifetime, that promise must be kept for decades.A.M. Best logo

When you select a company that has a record of earning very high ratings from the national rating companies like A.M. Best, Standard & Poor’s, and Moody’s, this demonstrates that the company is more likely than not to be there over the long term. And, they will pay regular dividends and the contracted interest rate due on your cash-value account.

Never trade a rating of “A” or higher for better interest rates and promised dividends that cannot be guaranteed.

Rather than spending valuable time researching all the insurance carriers that offer Whole Life Insurance, we recommend that you contact an experienced and reputable independent insurance broker whose livelihood depends on the expert advice they provide.


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For more information about retirement planning with Life Insurance and to see if it makes sense for you, call us at (800) 595-1130 during normal business hours or contact us through our website.


Frequently Asked Questions

Can Whole Life Insurance be used for retirement?

Since the cash value in whole life insurance earns guaranteed tax-deferred interest combined with annual dividends, whole life insurance is a great choice for retirement planning.

How to use whole life insurance for retirement?

When you purchase a whole life policy for retirement planning, the policy will accumulate the wealth needed for retirement from guaranteed tax-deferred interest and the annual dividends that should be used to purchase paid-up additions. When the time comes to withdraw funds for retirement, the policyholder can take tax-exempt policy loans and use the cash account as collateral. The loans do not have to be repaid and the money in the cash account will continue to grow.

Is whole life better than a 401k?

Although most workers contribute to a 401(k) and receive a percentage matched by their employer, the 401(k)  seems like the better deal – but not necessarily. Here is where participating Whole Life insurance will outperform a 401(k):

  • There are no contribution limits on your whole life policy
  • There are no penalties or tax consequences for withdrawing money before age 59 and a half.
  • There is no “minimum distribution requirement
  • Since your 401(k) contributions are paid with pre-tax dollars – all withdrawals are taxable – not so with whole life insurance


What type of life insurance is best for retirement?

Generally, there are two lines of thinking for funding a LIRP (Life Insurance Retirement Plan), Universal Life Insurance and Whole Life Insurance. We believe that whole life insurance is the better product to accumulate wealth because of the power of dividends.

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The information and materials on our website are provided for general informational purposes only and do not constitute professional advice or recommendation. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information, products, services, or related graphics contained on our website. Any reliance you place on such information is therefore strictly at your own risk.

The information and materials on our website are provided for general informational purposes only and do not constitute professional advice or recommendation. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information, products, services, or related graphics contained on our website. Any reliance you place on such information is therefore strictly at your own risk.

Curt Gibbs