Life insurance is often sold as a retirement solution because you can take policy loans tax-free. You may be asking yourself – should I invest in life insurance for my retirement? The post helps clarify why there may be better alternatives.

Life Insurance

In the purest sense, according to ChatGPT, life insurance is a contract where an individual pays regular premiums to an insurance company, and in return, the company provides a lump-sum payment (death benefit) to designated beneficiaries upon the insured person’s death, offering financial protection to their loved ones. It ensures that dependents receive financial support and cover expenses after the policyholder’s passing.

Nowhere in this simple answer does it mention retirement, or savings vehicle. Yes, there are some tax benefits to saving money in a life insurance policy. But you still have to pay premiums, which can be expensive.

Tax Benefits

The most significant tax benefit of life insurance is that the beneficiaries can accept full death benefit payout tax-free.

Permanent life, like whole life, universal life, and variable life is often touted as having tax-free growth because you can take a loan against your cash value tax-free. If you withdraw cash value or surrender your policy, you’ll pay tax on any cash above your premiums or basis. But if you take a loan, you don’t pay taxes, as long as the policy is in force. If you’re 80 years old and decide your policy is too expensive, you might want to surrender it. If you do,  you’ll owe taxes on the amount borrowed above premiums paid (your basis) as well.

One agent I sat down with for a consultation, when interest rates were at 2%, said that after 20 years the policy would average 8% per year if you held it that long. When pressed about how the company could offer 8% guaranteed over a 20-year period, he said, “It’s not guaranteed.” My takeaway was that you had to hold an insurance policy for 20 years and you might get a good return. My other takeaway was that you had to keep the policy forever to experience the benefit of tax-free withdrawals. In other words, the insurance company always gets their premiums.

A Story

A client of mine that worked in the healthcare industry came to us when she read something about “fiduciary” and how whole life and annuities might not be the best saving vehicles for retirement. At the time, she was single, making $300,000/yr, and had no kids. She was also “saving” $20,000/yr in a whole life insurance policy. After doing a cost analysis and assessing her situation – it was determined she didn’t need the policy. She wanted coverage to protect her boyfriend, whom she eventually married. So we suggested the old adage – buy term and invest the difference. Fortunately, she was still insurable and a term policy for the next 20 years was cheap. She paid less than $2,000 for $1 million in coverage and invested the $18,000 in her 403b. She’s a multi-millionaire now. The best part, she never gave up her lifestyle of vacationing and traveling.

Now she’s retired at age 67 and doesn’t need insurance. If she had kept the whole life, she might’ve made 8%/yr. But she’d still pay $20,000/yr for premiums even in retirement.


There are many ways to save for retirement. Permanent insurance like whole life, universal life, and variable life are some of them. But they may not be the best. It might be best to search for a fee-only, fiduciary, Certified Financial Planner® that can do an independent analysis about your situation, and determine the best way for you to save for retirement.

Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.