When considering a whole life insurance policy, there are two key factors that can significantly impact your cash value: company choice and policy design.

1.  Choose The Right Company: We always recommend choosing one of the four major mutual companies. These companies have a proven track record of delivering the most cash value in whole life policies. They have been in business for over 160 years, and they are the largest mutual life insurance providers in the industry. Additionally, they are often the preferred choice for banks, corporations, and wealthy families due to their financial stability and consistent performance.
2. Policy Design: To maximize the cash value of your policy, it’s essential to structure it correctly. This involves three simple steps
   • Minimize your base premium 
   • Add a term insurance rider to prevent a MEC 
   • Maximizing the Paid-Up Additions (PUA) rider. 

For example, if you plan to fund a policy with $10,000 per year, an optimal setup would include a $1,000 base premium, a term rider costing $100, and an $8,900 allocation to the PUA rider. This structure allows for the highest possible cash value accumulation over time.

Who Are the Four Major Mutual Companies?

The four major mutual life insurance companies we recommend are:

• MassMutual – 2025 Dividend Rate: 6.40%
• Guardian – 2025 Dividend Rate: 6.10%
• New York Life – 2025 Dividend Rate: 6.20%
• Northwestern Mutual – 2025 Dividend Rate: 5.50%

Many brokers do not recommend these companies because they offer lower commissions compared to other providers. However, historical data shows that these major mutual companies consistently produce the highest cash value returns (I’m not talking about illustrations). While other companies may not necessarily be “bad,” we have documented performance proof from these four mutual companies, whereas others have not provided sufficient historical evidence.

When selecting a company, the biggest deciding factor should be flexibility. The best policies allow you to add money at your own pace rather than feeling like you are just paying another bill. For a deeper dive into this topic, check out this video.

A common question we receive is Can I just write a 1x check for my policy? If the dividend rate is 6.00%, I should start to earn 6.00% on my money right away, right? 

Unfortunately, no.

Whole life insurance does not function like a traditional savings account. If you put money into a 5% interest-bearing account, the sooner you contribute, the more interest you earn. However, life insurance works differently because of the insurance costs.

Many assume that depositing a large lump sum into a policy will immediately start generating high returns, but this is not always the case. With life insurance, it’s essential to ensure that the cash value grows faster than the internal costs of the policy. 

A real-life example involves a 60-year-old who wanted to contribute $300,000 to a policy. We looked at two examples. 

The first option—paying $300,000 in one year—resulted in a very high death benefit to prevent a Modified Endowment Contract (MEC). While this policy was max-funded and showed decent cash value in the first year, it grew slowly because of the high expenses. 

The second option—spreading the $300,000 over four years with $75,000 per year—allowed for a much lower death benefit since the MEC limit only needed to accommodate a $75,000 contribution. This approach funded the policy for four years, after which it became self-sustaining. In the long term, this structure resulted in significantly more cash value growth. Learn more in this video.

Understanding cash value growth requires looking beyond the guaranteed or dividend rate. For example, if a policy advertises a 6.00% dividend rate, that does not mean your money will grow by 6.00%. This is because the dividend rate is a gross rate applied after the company deducts its insurance charges.

To determine the net return, look for these terms in your illustration:

• Annual Rate of Return (Annual Yield) – This indicates the net growth rate on a yearly basis. For instance, if your cash value starts at $100,000, and after a year, it increases to $105,000, your Annual Rate of Return is 5.00%.
• Internal Rate of Return (IRR) – This is a fancy way of measuring the average return.

If percentage-based metrics feel confusing, an easier way to measure growth is to look at your cash value in dollars. For example, if your cash value starts at $100,000, and after a year, it increases to $105,000, your cash value grows by $5,000. For more clarity, watch this video.

When evaluating whole life policies, you may come across the terms Non-Direct Recognition and Direct Recognition. These terms can impact how dividends are credited to your policy when you take out a loan against it. 

• Non-direct recognition: You earn dividends on your entire cash value when you take a loan. The dividend rate applied to borrowed is the same as non-borrowed cash value.
• Example:
  • Assume you have a policy with a 6.00% dividend rate. 
  • Your cash value is $100,000.
  • You take a $50,000 loan.
  • The $50,000 you did not borrow receives a 6% dividend.
  • The $50,000 you borrowed receives a 6% dividend rate.
  • A 6% dividend rate is credited to the full $100,000.
• Direct recognition: You earn dividends on your entire cash value when you take a loan. The dividend rate applied to borrowed cash value could be higher or lower than the dividend rate applied to non-borrowed cash value.    
• Example:
  • Assume you have a policy with a 6.00% dividend rate. 
  • Your cash value is $100,000.
  • You take a $50,000 loan.
  • The $50,000 you did not borrow receives a 6% dividend.
  • The $50,000 you borrowed receives a dividend that is slightly higher or lower than 6% (it depends on the insurance company)

Learn more in this video.

Yes! If structured correctly, a whole life policy allows your cash value to grow tax-free, and you can access it without tax implications. However, certain mistakes can trigger taxation.

Two taxable events to avoid include:

1. Modified Endowment Contract (MEC) – If your policy becomes a MEC, it functions similarly to a 401(k), where cash value grows tax-deferred, but withdrawals may be subject to income tax and a 10% penalty if taken before age 59½. To prevent this, we ensure contributions stay within the policy’s MEC limit. The MEC limit is set when you start your policy.
2. Cashing Out a Policy – Any gains are taxable as income if a policy is surrendered or cashed out. Similarly, if too much is loaned against the policy and it lapses, taxes will be due on the gains and the unpaid interest.

A Modified Endowment Contract (MEC) is a policy that exceeds the maximum premium limits set by the IRS, altering its tax treatment. If a policy becomes a MEC, any distributions—whether withdrawals or loans—the gains are taxed as income rather than being tax-free.

The MEC limit is determined by factors like age, death benefit, gender, and the guaranteed rate of the policy.  If you exceed this limit, the policy is reclassified as a MEC, triggering tax consequences.

Unused MEC space rolls over annually. For example, if your policy has a $10,000 MEC limit and you only contribute $5,000 in the first year, you can contribute up to $15,000 in the second year without triggering a MEC.

If a policy accidentally exceeds the MEC limit, it is usually easy to correct, as insurance companies notify policyholders and allow for a reversal.

For additional insights into MECs, check out these resources:

• Video 1
• Video 2
• Video 3

For more background on MECs, see this Wikipedia page.