3 Things to Consider Before Opening a Cash Value Life Insurance Policy

 Three things to consider before opening a high cash value life-insurance policy are: insurance company selection, policy design, and policy loans.

  1. Select the Right Insurance Company

It’s important to choose the right insurance company if your goal is to maximize cash value growth. As you are aware, there are a lot of insurance companies in the United States. As such, there are differences in whole life insurance contracts from company to company which can impact cash value growth.

In our experience, we have found that when it comes to whole life insurance there are four mutual companies that consistently deliver among the highest cash value and death benefit appreciation in the industry in terms of actual performance:

  1. Mass Mutual
  2. Guardian
  3. New York Life
  4. Northwestern Mutual

These same insurance companies are also used by many major banks and corporations.

I recently had a conversation with a top independent actuary who consults with insurance companies nationwide. He stated that it is better to go with a basic whole life insurance policy with one of the top mutual companies rather than a well-designed policy with a smaller insurance provider.

  1. Policy Design Restrictions

We typically design policies that drive base premiums as low as the insurance company allows to maximize cash value growth. Base premiums fund policyholder death benefits. Of course, all insurance companies set base premium limitations, but some are more restrictive than others.

In addition to the lowest allowable base premium, we want to allocate the highest amount possible to a PUA rider which maximizes cash value growth. This portion of policy design is also referred to as cash dumping. Insurance companies have variable limits on the amount of cash dumping that can occur.

For example, Mass Mutual will allow you up to 10x your base premium as far as a total payment per year. So, if you have a $10,000 base premium you can contribute a total of $100,000 per year. It might have a $10,000 base premium and a $1,000 term rider needed to raise your MEC limit. So, with a $10,000 base premium and a $1,000 term rider, the policyholder can contribute $89,000 to the PUA accelerating cash value dumping.

Modified Endowment Contract (MEC) Limit

MEC limits are not regulated by insurance companies, but by IRS tax code. It’s a flexible limit in that it can be set by the policyholder, but in relation to age and death benefit coverage. The IRS uses a MEC test to determine whether the policy meets the definition of life insurance or taxable investment.

For example, if you want to contribute up to $50,000 per year, we will set your base premium to $5,000 using an insurance company 10x base premium formulation.

  1. Understand How Policy Loans Work

Insurance companies vary on policy loan allowances. Some companies allow immediate access to policy loans while others have a waiting period. There are no repayment terms for insurance policy loans and the resulting interest. However, outstanding loans upon the insured’s death will be deducted from beneficiary death benefits. It’s also important to monitor loan growth from unpaid interest because if the loan exceeds cash value the policy will lapse.

It’s also important to monitor cash value as you grow older. When a policyholder dies, death benefits are paid to beneficiaries with any excess cash value amounts forfeited to the insurance company.

Flexible Tax-Free Savings Vehicles

Maximum cash value whole life insurance policies are flexible tax-free savings vehicles. Cash value funds can be used in emergency situations, used as tax-free loans, and act as an annuity during your retirement years. It can be particularly useful for those who’ve maxed their IRA and 401k limits by providing a safe, stable, tax-free investment.


If you’d like more information on how to use a whole life insurance policy to maximize your tax-free cash position, you can view instructional videos on the IBC Global YouTube channel. You can also contact us for a free, no-obligation consultation from one of our Innovative Life Insurance Specialists.