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How Millionaires Build Wealth Using Life Insurance
Wondering how millionaires build wealth using life insurance? They’re using one particular type of policy that provides risk management, stability, liquidity, and tax advantages. The key? Choosing the right permanent life policy. In most cases, that’s going to be whole life insurance.
Six Advantages of Whole Life Insurance to Build Wealth
Whole life is one type of permanent life insurance, which covers you for the rest of your life (unlike, say, term life policies). For the purposes of this article, we’re going to stick with whole life since it has the most desired characteristics for wealth building. Those characteristics include:
1. Cash Value
The key advantage for building wealth is cash value. Think of it as a savings account attached to your policy. Every time you make a payment, a portion of that payments gets put in the cash value account. Your insurer will also credit your account with interest on a regular basis. With whole life, that interest rate is locked in when you buy the policy. It’s dependable and guaranteed and you can plot out how much cash value you’ll have in 5, 10, or 20 years. Whole life’s interest rates are usually higher than what you’d get from a bank’s savings account or CD.
The guaranteed interest rate makes financial planning easier when you know exactly how much you’ll have – especially since you can borrow against this money. That’s what many wealth building plans are after: a guaranteed source of money you can borrow against, and that’s exactly what whole life insurance provides. Below, we’ll explain exactly how you can access and use that money.
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2. Dividends
Some types of whole life pay dividends to policy owners. These are called participating policies, usually offered by insurance companies with “mutual” in the name. A mutual company means it’s owned by the policyholders. Instead of the company needing to provide dividends to shareholders, they provide dividends to policyholders.
Companies pay dividends when their investments do well and they keep their expenses down, resulting in a surplus. Those dividends can be paid out in different ways: as cash, or as an opportunity to buy more coverage in what’s called a “paid-up addition.” Each paid-up addition functions as a policy-within-a-policy, complete with its own interest-earning cash value. In considering how millionaires build wealth using life insurance, they use dividends as a way to grow their cash value with zero extra effort.
3. Stability
We’ve all seen the scary headlines from the past decade. Banks can collapse. Stocks and index funds can plummet, dragging down the value of traditional retirement accounts like your 401(k) or IRA. Even real estate can experience dramatic downturns, as it did in 2008 - 2011. Whole life insurance isn’t subject to the same market turbulence and influences that can inflate or remove value from those other assets in a heartbeat. It’s much less dependent on the prevailing economic conditions. Its cash value is never destroyed because it’s locked in with a guaranteed interest rate. Some other policy types give you the option of investing that cash value, but at the risk of potential loss. With whole life, that cash value is a solid, secure hedge against the investments you make elsewhere.
Rather talk to a real person about life insurance as a financial tool? Call us at (800) 521-7873 and let our licensed advisors talk you through it. Or click the button below to start with a free term life quote!
4. Liquidity
One important aspect of building wealth is liquidity. You can access up to 90% of your cash value at any time, through two different mechanisms:
- Policy loans. With a policy loan, you can borrow against your cash value in a private loan with your insurer. It will never appear on a credit report since it’s not reported to any credit bureau. It’s simply a private transaction between you and the insurer. You’ll be charged a small amount of interest, which will be at least partially offset by the interest your cash value will continue to earn during the life of your loan. In the techniques that explain how millionaires build wealth using life insurance, this is huge. Policy loans allow you to, in essence, be your own banker. You can use your cash value to take advantage of opportunities and investments. Ideally, those investments pay off and allow you to pay back the loan with a profit for yourself. The lack of a set repayment schedule is helpful if you want to use that loan money for a business or investment that might need a little time to grow.
- Partial withdrawal. A partial withdrawal is exactly what it sounds like – you can withdraw a portion of your cash value any time you need it. There will be a withdrawal fee, but you won’t accrue interest charges the way you would with a loan. The drawback? Since you’re removing the cash, it can’t continue to earn interest the way you would if you left that cash in place and borrowed against it.
5. Tax Advantages
The biggest advantage? Your cash value grows tax-deferred. You don’t pay tax on that growth, allowing the money to compound faster. You do pay tax on any amount you withdraw over the amount you’ve paid for premiums. Depending on how much you want to access, that could be one reason to choose a loan over a withdrawal. You will not be taxed on any policy loans you take. This is one of the key ways how millionaires build wealth using life insurance.
Rather talk to a real person about life insurance as a financial tool? Call us at (800) 521-7873 and let our licensed advisors talk you through it. Or click the button below to start with a free term life quote!
6. Overfunding
One additional benefit available to you is overfunding your policy. This means paying more than your minimum payments, which grows your cash value faster. When you overfund, roughly 90% of the overfunded amount goes straight into your cash value account. You’ll be able to purchase paid-up additions, as discussed in the dividends section above, faster than you would without overfunding. The more you overfund, the more paid-up additions you can buy, which entitle you to a bigger share of the next round of dividends.
The catch with overfunding is the timing. If you pay too much too soon, you can trigger an account reassessment by the IRS which would remove many of the tax advantages you need to build wealth. Always work with a tax and financial professional to make sure your payments fall within the accepted scope laid down by the IRS. The IRS currently uses a seven-pay test to determine if your policy needs to be reclassified. It looks at the amount you would pay into the policy during the first seven years if you were not overfunding. As long as you fund your policy with less than this amount, you will not incur a reclassification. Check with your tax professional to make sure you’re aware of the current rules before overfunding your policy.
Infinite Banking: Using Your Policy as Your Own Bank
Based on the six advantages above, it's not hard to see how the wealthy use life insurance to build wealth. You may see a popular strategy discussed online — often called "infinite banking," "be your own bank," or "bank on yourself." Interest in this concept has grown dramatically: it's one of the fastest-rising life insurance search topics heading into 2026.¹ Here's what the strategy entails:
- Hedge against higher-risk investments. Whether you overfund your account or not, you’re socking away money in a place where it’s protected from loss, with a guaranteed interest rate. Your cash value is a financial asset that adds to your net worth – and isn’t affected by the stock market.
- Be your own banker. Borrow against your cash value to make large purchases or investments. This is often less expensive, interest-wise, than obtaining a traditional loan through a bank. There’s also less paperwork and zero need to qualify. Most insurers let you borrow against 90% of your cash value. It’s up to you to make sure you always have enough left in the policy to pay for the cost of the insurance; if not, you risk lapsing the policy. Technically, you don’t have to repay these loans, although it’s recommended to stop accruing interest charges. When you pass away, the insurer will deduct any outstanding amount you own in loans and interest before paying the death benefit to your beneficiary(ies).
- Transfer generational wealth. Cash value aside, the life insurance death benefit is a way to ensure you pass tax-free wealth to the next generation. You can leave the money to any number of beneficiaries, including entities like trusts, as well as specify a percentage each beneficiary should receive. Your beneficiaries won’t have to pay tax on that death benefit and it doesn’t have to go through probate. You can use the death benefit to leave your children an inheritance or, if your estate has passed the estate tax threshold, work with a financial advisor to ensure the death benefit will give them enough to pay that estate tax. That way, they won’t have to sell items in their inheritance – homes, cars, artwork, jewelry, etc. – to pay the taxes.
TOne 2025 update worth knowing: the One Big Beautiful Bill Act, signed in July 2025, permanently set the federal estate tax exemption at $15 million per person (indexed for inflation) starting in 2026.² For many families this reduces federal estate-tax exposure — though some states maintain their own lower exemptions, so the generational-transfer benefits of life insurance remain relevant for state-level planning.
Is Using Life Insurance to Build Wealth Right for You?
This strategy isn't for everyone, and it's important to understand the tradeoffs before committing:
To sum up how the wealthy use life insurance to build wealth: it's a matter of using cash value as a source of funds for other investments, accessing a continually growing pool of money that replenishes itself through dividends and paid-up additions. Done right, it's a powerful tool — but it demands the right policy design and a long-term perspective.
Rather talk to a real person about life insurance as a financial tool? Call us at (800) 521-7873 and let our licensed advisors talk you through it. Or click the button below to start with a free term life quote!
Always consult a financial and tax professional before making your investing choices. This article is for informational purposes only and should not be used as tax advice.
Frequently Asked Questions: Using Life Insurance to Build Wealth
How do you use life insurance to build wealth?
You use a permanent policy — typically whole life — that builds cash value over time. That cash value grows tax-deferred at a guaranteed rate, and you can borrow against it through policy loans to fund investments, business opportunities, or large purchases. Because the borrowed cash value keeps earning interest and dividends, your money effectively works in two places at once. The death benefit also transfers tax-free to your heirs.What is infinite banking?
Infinite banking (also called "be your own bank" or "bank on yourself") is a strategy that uses a dividend-paying whole life policy as a personal banking system. Instead of borrowing from a bank, you borrow against your policy's cash value and repay yourself, keeping the interest within your own financial system. It requires a properly designed high-cash-value policy and a long-term commitment — typically 7+ years before it hits its stride.
Is using life insurance to build wealth a good idea?
It can be, for the right person — typically someone who has already maxed out tax-advantaged retirement accounts, has stable income, and wants a stable, tax-advantaged asset that isn't exposed to market risk. It's less suitable if you need liquidity immediately, can't commit to higher premiums long-term, or haven't yet secured basic income protection for your family. For most people, affordable term life insurance is the right first step.
How much does a wealth-building life insurance policy cost?
Whole life insurance costs significantly more than term — often around 10 times more for the same death benefit, because part of every premium funds the cash value. For meaningful cash-value accumulation, many infinite-banking policies involve annual premiums of several thousand dollars or more. The exact cost depends on your age, health, the death benefit, and how the policy is structured. An agent can model different funding levels for you.
Do you pay taxes on life insurance cash value?
Cash value grows tax-deferred — you owe no income tax as it grows. Policy loans are not taxed as income. You would only owe tax on a withdrawal that exceeds the total premiums you've paid in. However, if a policy is overfunded beyond IRS limits and becomes a Modified Endowment Contract (MEC), the tax treatment of loans and withdrawals changes unfavorably — which is why proper policy design matters.
Can you borrow against life insurance to invest?
Yes — that's central to the strategy. You can borrow up to about 90% of your cash value through a policy loan and use it however you like, including funding other investments. The cash value you borrowed against continues earning interest and dividends. The key risks: if your investment doesn't pan out, you still owe the loan, and if outstanding loans exceed your cash value, the policy can lapse. Disciplined repayment preserves the strategy's effectiveness.
References
1 Empathy. "Life Insurance Search Demand is Growing in 2026." Empathy.com, March 2026.
2 LOMA. "Life Insurance Trends: What Lies Ahead?" MarketFacts, 2026.
Last updated on: June 22, 2026
