How to Use Life Insurance as an Investment in 2025

Life insurance is often seen as a tool designed mainly for family protection, but some policy types may also offer long-term financial features that appeal to people looking for diversified planning.

In recent years, more individuals have shown interest in life insurance policies that build cash value, mainly because these products may provide a blend of stability, tax-advantaged growth potential, and flexible access to funds.

While this approach is not a shortcut to wealth or a guaranteed strategy, it can be a useful consideration for those who already follow a consistent financial plan. This guide explains how the investment-related side of life insurance generally works.

What Does It Mean to Use Life Insurance as an Investment?

Using life insurance as an investment simply means taking advantage of certain permanent policies that may build cash value over time. Unlike term life insurance, which offers coverage for a set number of years, permanent policies stay in force as long as premiums are paid.

A portion of each premium may go toward a savings-like component, often called “cash value.” This balance grows at a rate determined by the type of policy and the insurer’s structure, and it is usually tax-deferred, meaning any growth is not taxed annually.

Many people explore this option because the policy’s cash value can potentially be used while the policyholder is still alive. Some individuals use this feature to supplement long-term financial plans, while others view it as a flexible reserve that might assist with future opportunities or needs.

Access methods vary by policy type and may include withdrawals or loans, each with different impacts on the policy’s performance and benefits. This approach does not replace traditional investing, and outcomes depend heavily on funding consistency, policy structure, and realistic long-term planning.

However, for those seeking a blend of protection and potential cash accumulation, permanent life insurance can serve as a multi-purpose financial tool when used thoughtfully.

Quick Tip: Focus on policies that match your long-term goals. Prioritize consistent premium payments and understand cash value growth before committing to a permanent life insurance policy.

Comparison Table: Types of Life Insurance With Investment Features

Why Consider Life Insurance for Investment Purposes?

People consider life insurance as an investment-related tool for several reasons, especially when looking for options that may offer stability or long-term tax advantages. One common motivation is the potential for tax-deferred growth.

Since cash value typically grows without annual taxation, some policyholders view it as an additional savings resource that might complement retirement accounts. Although growth rates vary depending on the policy type, the tax structure may appeal to those who prefer a slower but steadier financial approach.

Another reason is flexibility. Permanent life insurance policies often allow policyholders to access a portion of their cash value through loans or withdrawals. While these actions can affect the policy’s performance, this level of access may be helpful for individuals who prefer having multiple financial tools available during different stages of life.

For some, this flexible access may offer reassurance during uncertain economic periods. Many people also like the idea that permanent life insurance provides dual functionality. It includes both long-term protection for loved ones and a financial component that may grow over time.

Although this does not guarantee specific outcomes, it offers a structured way to blend protection with potential savings, especially for individuals who value stability and long-range planning.

Key Fact: Cash value growth in permanent policies is usually tax-deferred. This can complement retirement accounts and serve as a flexible financial resource if planned carefully.

Types of Life Insurance with Investment Features

Several life insurance products include components that may support long-term savings or investment-related goals. The most common option is whole life insurance, which offers fixed premiums, guaranteed coverage, and a cash value portion that grows at a rate set by the insurer.

Some whole life policies may also provide dividends, although these are never guaranteed and vary by company performance. People who prefer predictable structures often consider this type.

Another choice is universal life insurance, which provides more flexibility. Policyholders may adjust premiums within certain limits, and the cash value may grow based on interest rates declared by the insurer.

This structure can be appealing for individuals who want long-term protection but anticipate changes in their financial situation over time. A third category is indexed universal life (IUL). With IUL, cash value growth is tied to the performance of a market index, such as the S&P 500.

However, growth is subject to caps and floors set by the insurer, which means gains and limitations vary. This option may interest those who want market-linked potential with some protection from downturns.

These policy types differ significantly in structure, cost, and performance, so understanding each option carefully is essential before choosing one.

Pros and Cons of Using Life Insurance as an Investment Tool

Using life insurance as an investment tool can offer long-term stability, but it’s not the right fit for everyone. Understanding the main advantages and limitations can help you see whether this approach aligns with your financial goals.

Real-World Example

Real-life scenarios can help explain how some people use permanent life insurance as part of a broader financial plan. These examples are not predictions, but they can show how different features of a policy may function when combined with long-term planning.

Consider a mid-career professional who wants a mix of protection and future flexibility. Instead of relying only on workplace retirement accounts, they might choose a whole life or universal life policy that includes a cash value component. Over time, as premiums are paid, the policy may gradually accumulate value based on the insurer’s guidelines.

If this individual later faces a large personal or business expense, they might have the option to borrow against their policy’s cash value. These loans can help create liquidity during times when they want to avoid pulling money from other investments.

However, every loan affects the policy differently, and long-term impacts depend on repayment choices and how the policy is structured. By the time the policyholder reaches retirement age, the cash value may potentially serve as supplemental support if planned carefully.

Even so, results vary, and professional guidance is often recommended. This example highlights that life insurance with cash value can be more than coverage it may act as a flexible financial resource when used strategically.

Potential Risks to Consider When Using Life Insurance

Exploring life insurance as a financial tool requires understanding the potential risks. Permanent policies typically cost more than term insurance, and early cash value growth may be slow.

This slow start can feel challenging for people expecting returns similar to traditional investments. Because the early premiums often go toward administrative costs and coverage, it may take several years before meaningful cash value accumulates.

Another consideration is policy management. Cash value loans and withdrawals can reduce the policy’s long-term performance if not monitored carefully. If too much is borrowed and not repaid, the policy may face increased pressure to stay active. This can lead to unexpected issues, including the possibility of losing coverage if the policy lapses.

Permanent policies can also be complex. Features such as interest credits, market-linked indexing, loan terms, and surrender periods may feel overwhelming without clear explanations. People who do not fully understand the terms sometimes experience results that differ from their expectations.

Finally, life insurance with investment components may not suit every budget. Premiums must be funded consistently for the strategy to function as intended.

For individuals with variable income or unstable finances, focusing on essential savings and debt management may be a more practical starting point before exploring advanced insurance strategies.

Keep in Mind: Permanent life insurance offers both protection and cash value potential, but early growth may be slow. Loans or withdrawals can impact the policy’s long-term benefits.

Who Should Use Life Insurance as an Investment Tool?

Life insurance with investment features may appeal to individuals who already maintain a stable financial foundation. This often includes people who have consistent income, long-term planning habits, and a desire to diversify their financial strategies.

For example, high earners who have already contributed to retirement accounts and are seeking additional tax-advantaged options may find permanent life insurance worth considering. The structure may allow them to add another layer to their long-term savings plan while keeping coverage in place.

Business owners also explore these policies because they sometimes serve multiple needs at once. Cash value may provide flexibility for business planning, while the death benefit can support succession planning or partner agreements.

These uses require thoughtful coordination with financial and legal professionals, but the flexibility can be appealing. Families focused on long-term legacy planning may also consider permanent life insurance.

The predictability of lifelong coverage, combined with the potential for cash value accumulation, may help with estate planning or future support for dependents. However, this strategy typically works best for people who already have emergency savings, manageable debt, and long-term investment habits.

Those still building basic financial stability may prefer simpler tools first. As with any financial decision, evaluating personal goals and speaking with a licensed professional can help determine whether this approach fits well.

How to Set Up a Policy the Smart Way

Setting up a life insurance policy with investment features works best when it’s approached with patience and a clear plan. The goal is not to rush into a product but to build a structure that supports your long-term financial priorities. Start by identifying what you want the policy to accomplish whether that’s consistent protection, gradual cash value growth, or flexible options you can adjust over time.

Next, review your budget to determine what level of premium you can commit to consistently. Policies with investment components often work best when funded steadily, so choosing a manageable amount helps keep the plan sustainable.

It’s also helpful to compare policy types and understand their differences. Some are designed for predictability, while others offer more flexibility or market-linked growth. Each structure has its own rules, costs, and long-term considerations.

Before finalizing anything, many people find it useful to look closely at factors such as fees, long-term commitments, and how the cash value is calculated. Asking questions and reviewing sample policy illustrations can make the details clearer.

Once the policy is active, monitoring it periodically ensures it stays aligned with your goals as your life or financial situation changes.

The Bottom Line

Using life insurance as an investment tool can make sense for some long-term financial plans, but it works best when you understand how the policy functions and what it can realistically offer. These products are not designed for quick returns; they are meant for steady growth and lifelong protection.

Taking time to compare policy types, review costs, and understand the cash value structure can help you decide whether this approach fits your goals. With careful planning and consistent contributions, a well-chosen policy can become a stable part of a broader financial strategy.