Cash value life insurance has loud critics, and some of their complaints are earned. Most of the policies they're describing were designed badly, and I'd criticize those too. Each objection below gets its fair kernel conceded first, because that's how you'd want to be answered.
The fair kernel: term insurance is cheap, markets have grown wealth for a century, and for pure death benefit on a budget, term wins. I sell plenty of it. The problem is the second half of the sentence. Most people don't invest the difference; they spend it. And the ones who do invest it ride the rollercoaster of human emotions, buying high and selling low with the crowd. The policy forces the saving, guarantees the floor, and hands you a line of credit while it does. Term plus investing is a fine plan. It's just not the same plan, and it leaves you with nothing in force at the age you're most likely to actually die.
Compared to a good decade in stocks, conceded, the policy loses that race. It isn't in that race. It's the safe asset in the plan, more akin to bonds, and against safe money it competes very well: tax-advantaged compounding, no losing years, and collateral you can use without interrupting the growth. Which one worries about money in their free time: the family with everything riding the market, or the one with a floor under part of it?
It's a fair jab, and the phrasing hides the mechanism. You're borrowing against your money, not out of it. The full balance keeps compounding untouched while the carrier lends you its funds at your collateral's strength. Compare the real alternatives: drain savings and the compounding stops. Borrow from a bank and the interest leaves your world forever. Borrow against the policy and pay yourself back, and the system's math tilts toward you. The interest isn't a penalty; it's the price of keeping every dollar working two jobs.
Use them! I'm a big fan of HELOCs, and having one is part of how I teach cash flow. The difference shows up in bad years. A HELOC can be frozen, reduced, or called exactly when credit gets tight, and it dies with the house sale. The policy line can't be frozen, doesn't expire, and grows every year for life. Have them both, and use whichever is most advantageous at a given time.
On a default-designed policy, the commission is large, so the kernel is real. Here's what that critique gets backwards: high cash value design pays the agent dramatically less, because paid-up additions carry little or no commission. It's in the agent's financial interest to sell you the bad build. When an agent voluntarily designs for high cash value, the incentives finally point the same direction as yours. Ask any agent to show you both builds side by side, and watch what they do.
Partly because badly built policies poisoned the well, and partly because nobody with a marketing budget profits from teaching it. Banks profit from your deposits, brokerages from your trades. A boring mutual policy that quietly compounds for fifty years doesn't buy ad space. It does show up on bank balance sheets: $205.7 billion of bank-owned life insurance as of late 2024, per FDIC filings. Watch what they buy, not what they sell.
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