Uses of Life Insurance

A permanent, whole-life insurance policy may be used to provide income to the beneficiary, or beneficiaries, at time of death. Most of us know and understand this. This is the primary function of a life insurance policy.

But a whole life policy has other uses, as well. Here, it’s important to make a distinction between a permanent policy and a term policy. Term is far more limiting in the uses it may serve, outside of offering up a death benefit. Term policies certainly come with advantages, no doubt. But only with a permanent policy may you put in place creative financial solutions in such a way that the policy has many more uses other than providing death benefits. Several of these are listed below.

  1. Cash flow. While it generally takes a whole life policy up to 10 years to begin generating cash flow, you can borrow against your policy much sooner. This method of generating cash flow is perhaps one of the most commonly understood advantages of a whole life policy. This is true because the life insurance industry, appropriately, goes out of its way to let policyholders know that this is a salient feature of how they can be used and why they should be purchased. Usually, you can pay the company back, with interest. Or you can have the loan amount deducted from the death benefit. As with all of these options, you should speak with an advisor before you decide to pursue a life insurance policy loan.
  2. Living benefits. Many newer policies now come with what are called “living benefits.” What this means, literally, is that you can access benefits, or policy payments, if certain afflictions develop regarding your health, without death being the trigger. These kinds of health issues usually surround whether you are critically or terminally ill or injured. Living benefits may be offered under term policies, but they are usually characterized in different ways from a whole life policy. Perhaps the best term here is “accelerated benefit riders.” However defined, these benefit options allow should allow you great flexibility should you have an unexpected need for cash.
  3. Tax shelter. The investment growth in a life insurance policy is tax-sheltered. That means that the investment return inside of your policy is not subject to taxation. It is allowed to continue growing (different kinds of investment alternatives exist and must be fully understood) tax-free.
  4. Estate preservation. If set up properly, the amount you pay in premiums to your policy may be deducted by your estate, thus limiting the amount of taxes you pay. Tax-free cash is available once the policyholder passes away and these payments may be used by heirs to cover estate taxes.
  5. Cash value for death benefits. If your policy permits, you may take your accumulated cash value and use it to purchase a greater death benefit. In this instance, rather than take a distribution of cash available to you, this amount can “go back” into the policy to increase the amount of death benefit that will be available to the policy beneficiary. The ability of your policy to offer this option is important, and you should carefully consider purchasing a policy that will not provide this level of benefit flexibility.
  6. There are numerous other advantages to purchasing life insurance. These far exceed the core reason, which is to provide for heirs at time of death. Many of these have to do with accessing the cash value portion of your policy. If there is one key provision of a life insurance policy, it is likely its ability to build a cash value that you can access for any number of reasons. These include loans to start a business or college education expenses.

It is important for you to understand the creative uses that life insurance policies offer. They are able to accomplish much more for you financially than simply paying burial expenses and providing income to your heirs. Know enough about them to know that you should seek out the advice of an experienced financial consultant before making any policy decisions.

Confidence Wealth Management team





© 2024 Confidence Wealth Management LLC. All rights reserved.

Investment Advisory Services offered through Confidence Wealth Management LLC, an SEC registered investment adviser. Confidence Wealth Management LLC (CWM) and Confidence Wealth & Insurance Solutions LLC (CWIS) are two separate affiliated companies. All investment advisory services are provided by CWM. All insurance products and services are provided by CWIS. CWIS does not provide any investment advisory services. CWM does not sell any insurance products. For complete information regarding Confidence Wealth Management’s services and fees, please review our Form ADV Part 2A Disclosure Brochure, which can be found at or requested by calling us at (310) 824-1000. Information provided herein reflect Confidence Wealth Management’s views as of the creation date. Such views are subject to change without notice. Information provided herein is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any securities. No investment decision should be made based solely on any information provided herein. Confidence Wealth Management has not taken into account the investment objectives, financial situation or particular needs of any individual investor. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. This is designed to provide general information on the subjects covered. Pursuant to its circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that the information given does not give legal or tax advice. Should you have any tax or legal questions, you are encouraged to consult your tax advisor or attorney for any tax or legal matters. Not affiliated with the U.S. Government or any governmental agency.

Terms of Use  |  Privacy Policy

Confidence Wealth Management LLC (CWM) is an SEC registered investment adviser. Confidence Wealth & Insurance Solutions LLC (CWIS) is licensed under the NV Department of Insurance, license no. 3647322. CWM and CWIS are two separate affiliated companies. All investment advisory services are provided by CWM and all insurance products and services are provided by CWIS. CWIS does not provide any investment advisory services and CWM does not provide insurance services. CWM and CWIS have no affiliation with government, state, or local agencies. Consult with an attorney or CPA for usage of tax or legal concepts. This material may contain information that are close approximation to the totality of information available to us and not necessarily specific within regards to one situation or another. Some opinions and statements are informational. They are not investment advice as they may not be complete in terms of all details needed to affect an action you wish to undertake, investment strategy or plan. Pursuant to IRS Circular 230, the material is not intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. No estimates used are a promise of return. Also, many opinions are summaries and may not reflect all pertinent facts relevant to you. Any information given is to be considered general, and nothing said herein should be used as a basis for investment decision unless you consult with your Confidence Wealth advisor that can understand your unique situation and give you a customized solution with a complete disclosure. Past performance does not indicate future results. As you know, no one can predict the future. Thus, any forecast in this material is intended strictly as a possible future outlook and not a statement of fact as there could be any scenarios that are not in your favor when making a decision. You must examine all adverse and negative implications on any forecast when made. All information is based on the date of the material and may not be valid, may change, and/or may not be true any longer as time passes. Also, the Form ADV Part 2A for CWM contains detailed disclosures regarding our services and fees, along with applicable conflicts and how we address such conflicts. A copy of our Form ADV can be obtained by calling (310) 824-1000.

Taxes in Retirement guide


The Guide to Taxes and Your Retirement