In the Spotlight

Whole Life for Life Protection

By Jon Shuman

While policyholders primarily purchase whole life insurance for its guaranteed death benefit protection, the product has often-overlooked advantages for retirement planning as well.

The death benefit can help replace retirement savings lost to the premature death of a breadwinner. If someone has 20 or 30 years of savings to accumulate before retirement, passing away prematurely can leave a spouse with a huge financial hole to fill.

In retirement, the death of a spouse often leaves the survivor with reduced Social Security benefits. The death benefit from a whole life policy can make up for lost Social Security benefits, helping preserve the survivor’s lifestyle.

Whole life’s living benefits – in the form of the guaranteed cash value accumulation – can be tapped while the insured is living as a source of retirement income. The cash can be accessed through withdrawals or tax-free policy loans to supplement retirement income from pensions, Social Security and other savings and investments. Of course, policyholders need to understand that accessing the cash value may reduce the policy’s cash value and death benefit, can increase the likelihood of the policy lapsing and may have tax implications.

Whole life can also help protect retirement savings from a much more common financial problem: withdrawals and loans from a 401(k) plan. A loan or withdrawal can reduce the borrower’s future market gains on the money and therefore erode the positive effects of compounding over many years.

It’s a much more common problem than you might expect. Consider that 21 percent of active participants in a defined contribution plan have an outstanding loan at any one time and 37 percent have loans at any point over a five-year span, according to the National Bureau of Economic Research1. Many of those loans – 10 percent – wind up in default, the NBER reports.

A total of $6 billion in “leakage” or lost retirement savings results from retirement savers defaulting on their loans from 401(k) plans each year, according to the Pension Research Council (PRC) at the Wharton School, University of Pennsylvania.2 The PRC’s analysis of 401(k) and other retirement savings plan loan activity finds that those who can least afford to tap into their retirement savings are the most likely to do so:

  • Loans from plans that allow multiple loans are often smaller, consistent with participants accessing cash to cushion financial shocks.

  • Participants ages 35-45 have the highest propensity for taking loans. Those folks are at the age typically associated with raising families, buying homes and saving for education expenses.

  • Low liquidity households are more likely to default on loans.  They tend to be employees who are younger or low earners with tight finances and meager savings. When a financial emergency strikes, they have few options other than digging into their retirement savings.

That’s where whole life’s cash value can help. The cash value from a policy can be used for any reason, including a source of emergency funds much like a savings account.

By serving as a potential source of cash for financial emergencies or planned expenses such as the down payment on a home or college tuition, whole life can discourage retirement savers from taking loans or withdrawals from their employer’s 401(k) plan.

The combination of death benefit protection and access to cash makes whole life a powerful tool to enhance financial security. It’s especially true for anyone who wants to someday retire.


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Jon Shuman is leader of the workplace insurance sales team for Massachusetts Mutual Life Insurance Co. (MassMutual).

Before making a withdrawal or taking a loan from a whole life insurance policy, policy holders should consult with their financial professional for assistance in determining what is best for their particular financial situation. 

1Borrowing from 401(k)s, The National Bureau of Economic Research’s Bulletin on Aging and Health,

2Borrowing from the Future:401(k) Plan Loans and Loan Defaults, Pension Research Council, Wharton School, University of Pennsylvania,