using life insurance as a financial asset
Life insurance can offer a benefit to loved ones when you pass but it can also be a financial asset during your life.
Key Takeaways
Life insurance can provide a death benefit for loved ones while some permanent policies also build cash value that may serve as a flexible financial asset during your lifetime.
Only permanent life insurance policies typically allow cash value accumulation that you can access through loans, withdrawals or other features.
In the US, whole life and universal life (including variable or indexed versions) are common options with potential tax-deferred growth.
In Europe, savings-linked or investment-linked life policies are widely available, though features and tax advantages vary significantly by country under local regulations.
Accessing cash value involves important trade-offs, including potential impacts on your death benefit, fees and tax implications always review policy details and consider professional advice.
Using Life Insurance as a Financial Asset in the US and Europe
About half of American adults had some form of life insurance coverage as of recent 2024–2025 data. In Europe, coverage levels and product preferences vary by country, with many households using life insurance for both protection and long-term savings or estate planning.
When people think of life insurance, the primary focus is often on providing financial support to loved ones in the event of death. However, certain permanent life insurance policies can also function as a financial asset during your lifetime, similar in some ways to retirement accounts or investment vehicles by building cash value over time that you may access under specific conditions.
Important Note on Regional Differences :
Product features, tax treatment and regulatory frameworks differ between the US and Europe (and even among European countries).
In the US, policies are often designed around federal tax rules that can allow tax-deferred growth and tax-free loans under certain conditions.
In Europe, many life insurance products combine protection with savings or investment elements (sometimes called “assurance-vie” in France, “Lebensversicherung” in Germany or investment-linked policies in the UK and elsewhere).
Tax advantages, such as favorable treatment on payouts or growth, depend heavily on local rules and how the policy is structured. Always check with a qualified advisor familiar with your country’s regulations.
Which Policies Can Build Cash Value?
Not all life insurance policies allow you to accumulate and access cash value. Term life policies, which provide coverage for a set number of years and are often more affordable, generally do not build cash value.
Only permanent life insurance policies typically offer this feature. These policies can last for your entire lifetime (as long as premiums are paid) and include a cash value component that grows over time.
Two common types in the US are:
Whole Life Insurance : Provides a guaranteed death benefit and cash value that accumulates at a minimum guaranteed rate (plus possible dividends, depending on the policy). Premiums are usually fixed, offering predictability.
Universal Life Insurance : Offers more flexibility in premiums and death benefits. Cash value grows based on interest rates set by the insurer (which can change). A subtype, variable universal life, lets you allocate cash value to investment options such as mutual funds or ETFs, with potential for higher (or lower) returns depending on market performance.
In Europe, similar concepts exist under names like whole-of-life, endowment, or unit-linked / investment-linked life insurance.
These often allow policyholders to choose investment funds for the savings portion, with varying degrees of guarantees.
Features and guarantees can differ significantly by country due to local regulations (e.g., Solvency II in the EU).
Permanent policies can sometimes act as a partial hedge against market volatility because part of the cash value may be backed by more conservative investments, though this depends on the specific product and any variable components.
How to Access Cash Value as an Asset
If your policy builds cash value, here are common ways it may be used during your lifetime (availability and exact rules vary by policy and jurisdiction):
Policy Loans : Borrow against the accumulated cash value. In many US policies, these loans can be tax-free if the policy stays in force, but interest accrues and any unpaid balance reduces the death benefit. In Europe, similar borrowing features exist, though tax treatment varies.
Use as Collateral : Some lenders may accept your policy’s cash value as collateral for a loan, potentially improving approval odds or terms. If the loan is not repaid, it can reduce what beneficiaries receive.
Withdrawals :Take money directly from the cash value. Withdrawals up to your basis (premiums paid) are often not taxed, but amounts exceeding that may trigger taxes. Withdrawals permanently reduce both cash value and the death benefit.
Accelerated Benefits / Living Benefits : Many policies offer riders that allow early access to a portion of the death benefit (often 25%–100%) if you experience a qualifying serious illness, such as certain cancers, heart attacks, or other critical conditions.
Surrender the Policy : Cancel the policy and receive the remaining cash value, minus any surrender charges or fees. This ends your coverage and may have tax consequences, similar to an early withdrawal from a retirement account.
What to Watch Out For
Impact on Death Benefit : Any loans or withdrawals typically reduce the amount paid to beneficiaries.
Fees and Charges : Surrender charges can be significant in the early years. Ongoing policy fees or cost of insurance charges also apply.
Tax Considerations : Tax-deferred growth and favorable access rules are not guaranteed and depend on the policy remaining qualified under local laws. In the US, lapsing a policy with outstanding loans can create a taxable event. In Europe, tax rules vary widely by country and may treat offshore or certain investment-linked policies differently.
Interest Rates and Guarantees: Universal/variable policies have less predictability than whole life. Returns are not guaranteed and can fluctuate.
Policy Lapse Risk: If loans or fees exceed available cash value, the policy could lapse, triggering taxes and loss of coverage.
Life insurance policies that build cash value tend to have higher premiums than pure term coverage. They are complex financial products and suitability depends on your individual goals, risk tolerance, time horizon and tax situation.
Before purchasing or accessing any policy, carefully review the contract details (including the fine print on guarantees, fees and conditions) and consult a qualified financial or insurance advisor who understands both protection needs and the rules in your country. This is not personalized advice and outcomes can vary.