Building a nest egg with whole life insurance

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Whole life insurance is not just a safety net for loved ones after you die — it can also double as a smart savings tool and work for you while you’re still here. In addition to the life insurance coverage, whole life policies build something called cash value over time. Think of it as a little savings account tucked inside your policy. As you pay your premiums, that cash value grows, often at a steady, guaranteed rate. You can borrow against it, use it to cover emergency expenses, or even help fund things like a down payment or college tuition. It’s like having a safety net and a financial cushion rolled into one policy.

One reason people use whole life insurance as a nest egg is because it offers stability and predictability. Unlike investments that can rise and fall with the stock market, the cash value in a whole life policy typically grows at a guaranteed rate. That makes it an attractive option if you’re looking for a low-risk way to build up extra funds over time. Plus, the money is accessible—you can borrow against it or withdraw from it if you need to, whether it’s for unexpected expenses, supplementing retirement income, or leaving a little something extra for your family. It’s a slow and steady way to grow your wealth while knowing your loved ones are protected, too.

Key Takeaways

Whole life insurance policies accrue cash value.
You can borrow against your whole life insurance policy.
You also can withdraw money from the cash value of a whole life insurance policy tax-free, up to the amount you’ve paid in premiums.
If you withdraw more than what you paid in premiums, it may be taxable.

Can you use whole life insurance as a nest egg?

Yes, you can use whole life insurance as part of an overall savings strategy. “Pairing a whole life insurance policy with investments can serve as a strategic component of a financial plan. It can provide stable cash value that isn’t tied to market fluctuations,” says Nathaniel Segall, a certified financial planner and financial representative at Northwestern Mutual.

Whole life insurance has a cash value component that grows at a fixed rate set by the mutual insurance company, and a portion of your policy premium goes towards building the cash value. The cash value amount is tax-deferred if it is equal or less than what you’ve paid into the policy, but anything over that can be taxable.

“After paying premiums for a number of years, you start to build a healthy cash value that’s separate from your death benefit. Once you reach a certain threshold, depending on the specific plan, it can make sense to tap into that cash value,” says Segall.

How to use whole life insurance as a nest egg

According to Segall, you can use life insurance as part of your overall financial strategy and as one of your savings tools. However, if you’re looking for a quick way to grow your savings, whole life insurance is not going to be a quick fix. Growing a cash value can take many years, and premiums are more expensive than other life insurance products, like term life.

But after you have accumulated enough cash value in the policy, there are two ways to take advantage of your whole life insurance policy’s cash value.

Withdraw from the cash value

Once your whole life policy has accumulated enough cash value, you can withdraw a portion of those funds. People often use these withdrawals for things like home repairs, medical expenses, college tuition, or even to help with day-to-day living expenses in retirement. The key thing to remember is that any money you take out reduces your policy’s cash value—and possibly your death benefit. For example, if your policy has a $500,000 death benefit and you withdraw $50,000, your beneficiaries might only receive $450,000 when you pass away (unless you repay the withdrawal or structure it differently). However, withdrawals from the cash value are generally tax-free up to the amount you’ve paid in premiums, which can make this a tax-friendly option.

Take out a loan against your policy

Another option is to borrow against your policy’s cash value. This works similarly to a traditional loan but without the strict approval process or credit checks you’d get from a bank. You can use the loan for virtually anything—whether you need quick cash for an emergency or want to fund a big purchase. The interest rates on these loans are usually lower than other types of loans, and you’re borrowing from yourself in a sense. However, any loan balance you don’t pay back (plus interest) will be deducted from your death benefit. So, if you borrow $50,000 and pass away without repaying it, your beneficiaries would receive the death benefit minus what you owe. Keep in mind that unpaid loans can also affect your policy’s ability to grow cash value and may even cause the policy to lapse if the interest builds up too much.

The pros and cons to using whole life insurance as a savings vehicle

There are pros and cons to using whole life insurance as a nest egg. Consider these advantages and potential drawbacks before making whole life insurance part of your financial savings strategy.

Pros

Cash value. Whole life insurance policies accrue cash value over time. You can withdraw those funds or borrow against their value. Remember that if you take out a loan, you have to pay it back with interest. You do not have to repay a withdrawal, but it will decrease the death benefit.

Tax-deferred. The cash value in your policy is tax-deferred unless you withdraw more than you paid into the policy.

Permanent. Whole life insurance is considered a permanent life insurance policy, meaning coverage lasts your entire life.

Cons

Not a quick fix. Growing the cash value of your policy takes time. Don’t be tempted to tap into those funds until you have to. “I’d advise to wait until your cash value accrues to a point that it makes sense to borrow from it,” says Segall.

Expensive premiums. Whole life insurance is much more expensive than term life, with far larger premiums. The cost of whole life insurance depends on a variety of factors, like your age, health, insurance company and more.

Interest if you borrow. If you take a loan or borrow money from your whole life policy, you’ll need to pay it back plus interest.

Is using whole life insurance as a nest egg a good idea?

Here’s the thing—whole life insurance isn’t the right fit for everyone. Some people are better off with term life insurance, which is often far less expensive and provides straightforward protection for a set period of time (say 20 or 30 years). Instead of paying higher premiums for a cash value policy, they can invest the difference elsewhere—like in retirement accounts, stocks, or other investment vehicles that may offer greater growth potential. In many cases, separating insurance from investing can be a smarter, more flexible strategy.

Before you start thinking of your policy as a personal bank account, it’s important to understand the risks. If you withdraw too much cash value or take out a loan and don’t repay it, you’ll reduce the death benefit your loved ones receive. Or, if you’re not careful, the policy could lapse altogether, leaving you with nothing to show for years of premium payments. There are also potential tax implications, especially if your withdrawals exceed the amount you’ve paid into the policy in premiums.

However, life insurance cash value does not fluctuate with the market like stocks. It can be a reliable way to accrue cash and build legacy savings.

That’s why it’s so important to talk to a financial planner to determine if using your whole life policy as a nest egg is the right choice for you. A professional can help you weigh the pros and cons based on your personal goals, risk tolerance, and financial situation. They’ll also help you understand whether you’re better off keeping the policy in place for peace of mind or if it makes sense to access some of the cash value to support your financial plans. Whole life insurance can be a valuable tool—but it’s not a one-size-fits-all solution.

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Kara McGinley

Kara McGinley has over 6 years of experience writing, editing, and reporting on insurance and the insurance industry. She's been a licensed property and casualty expert in New York since 2021. Kara has been featured in several national publications, including USA TODAY, MSN, LifeHacker, Kiplinger, PropertyCasualty360, Policygenius, Rental Housing Journal, and WRAL.