How To Use Life Insurance While You're Still Alive

Most people who own life insurance own a contract they expect to never touch. They pay the premium, they file the policy, and they assume the only event that unlocks any value is their own death. That assumption is where the majority of the asset's usefulness gets thrown away, because the feature set inside a permanent policy operates during your lifetime, not after it.

A properly structured cash value policy is a pool of capital you can access without asking a lender for permission, and the death benefit is what remains after you have used it. That is a structural claim, not a marketing one. The mechanics are ordinary: the cash value serves as collateral, the carrier lends against it, and the policy keeps compounding on its full value while the loan is outstanding.

At BetterWealth we have structured more than 2,000 policies across all 50 states, and the single most common misunderstanding we correct on a first call has nothing to do with dividend rates or carriers. It is the belief that the money is locked until death. Van Mueller, who has spent 54 years running 30 to 50 client appointments a week, puts the correction in one line: no insurance company that has ever existed has paid a single dollar to a dead person.

This piece covers what living access actually means, how a policy loan works step by step, the tax treatment that makes repositioning taxable retirement money worth considering, the long-term care and legacy math that most comparisons miss, and the test The And Asset applies before any of it is worth doing. It also covers who should skip this entirely.

Van Mueller spends most of the conversation on something this article cannot reproduce: the exact questions he asks to get a client thinking about living access in the first place, delivered the way he actually says them.

01 / The problemWhat most people actually own when they own life insurance

Most people own a contract whose entire value they have mentally deferred to a date they cannot control. That deferral is the problem, because a permanent policy is not a one-event instrument. It holds a growing pool of capital that the owner can collateralize at any point, and treating it as untouchable is functionally the same as keeping money in an account you have decided never to open.

The cost of that decision shows up in two places. The first is liquidity. When an opportunity or a shock arrives, the owner goes to a bank, a HELOC, or a brokerage margin desk, and pays interest to an outside lender while their own capital sits idle inside the policy. The second is the care years. A retiree who spends down an IRA to cover chronic care in their final years reduces the inheritance dollar for dollar, and pays ordinary income tax on the way out.

Nelson Nash named the first problem decades ago. You either lose money paying interest to outside lenders, or you lose it to the opportunity cost of capital that is not working. Living access is the structural answer to both.

02 / The answerCan you use life insurance while you are still alive?

Yes, if the policy is a permanent policy with cash value. Term insurance has no cash value and offers no living access unless a rider allows acceleration of the death benefit for terminal or chronic illness. A whole life policy designed for cash value gives you three distinct forms of lifetime access, and they behave differently.

The first is the policy loan, which is the mechanism this article spends most of its time on. You borrow from the carrier using your cash value as collateral. The money is not withdrawn, so the policy continues to compound on its full value, net of mortality and expense charges. There is no credit check, no underwriting, and no committee, because the collateral already sits on the carrier's balance sheet.

The second is acceleration. Under IRC Section 101(g) and carrier-specific riders, a portion of the death benefit can be paid out during life for terminal, chronic, or in some contracts critical illness. Availability and definitions vary by carrier and by state, so this is a contract-level question, not a general one.

The third is conversion of the asset into an income stream in retirement, which is a distribution strategy rather than an access mechanism. It is the reason a carrier's loan structure in the later policy years matters more than most buyers realize.

The money is not locked. It is collateral.

03 / The frameworkWhat does it mean to use the policy while you are alive?

It means treating the policy as a capital base rather than a death benefit you happen to be funding. That framing is where The And Asset starts, and it is where our approach separates from how infinite banking is usually taught.

Credit belongs where it is due. Nelson Nash pioneered the idea of using whole life insurance as a personal banking system, and his insight about lost opportunity cost is the foundation everything else is built on. The And Asset shares those roots and operates on different principles.

Where IBC ends and The And Asset begins

IBC says you can use a whole life policy as a personal banking system for any purchase, including consumption. The And Asset says you only deploy capital from the policy when the borrowed dollars will produce a return greater than the carrier's loan cost, because the interest is a real cost paid to a real counterparty. Borrowing at roughly 6% to buy a depreciating asset is an expensive way to spend money, and the policy does not change that arithmetic.

Many IBC marketers say you are paying yourself interest. You are not. The interest goes to the insurance company. Your return is what the deployed capital earns elsewhere while the policy continues compounding on its full value. That correction is the whole difference between a strategy and a pitch.

Living access does not suspend the rule. It is the reason the rule exists.

04 / How it worksHow do you actually get money out of a life insurance policy?

You take a policy loan, and the sequence has six steps that determine whether it works. The order matters, because most of the failures we see happen at step one or step three, long before anyone touches a loan form.

1. Structure the policy for cash value. Minimize base premium and load the paid-up additions rider as heavily as the IRS limit allows without creating a Modified Endowment Contract. The base-to-PUA split, written as 25/75 or 10/90 depending on design, is the single decision that determines how much capital is accessible in the early years.
2. Fund it and let the early years capitalize. First-year cash value typically lands between 75 and 92% of premium depending on carrier and design. Cash value trails cumulative contributions for the first several years, and that is correct behavior for a real policy.
3. Confirm the use before you borrow. Name the specific activity and estimate its return. If you cannot identify something that clears the carrier's loan cost, stop here. This is the step that separates The And Asset from a personal credit line.
4. Request the loan. Most carriers allow a first loan 10 to 30 days after initial funding. Smaller loans are usually handled by phone or online portal, larger loans by a signed loan form. Interest typically accrues daily and shows in the portal.
5. Deploy the capital and track both returns. The policy compounds on its full cash value, net of mortality and expense charges, while the deployed capital earns its own return. Two returns, one dollar. That is the AND.
6. Repay from the cash flow the activity produces. Repayment restores borrowing capacity and clears the loan balance against the death benefit. An outstanding loan reduces the death benefit paid to beneficiaries until it is repaid.

Step six is the one people skip in the marketing and the one that decides outcomes in practice. The discipline of repayment is the whole strategy.

What break-even really looks like

Van Mueller has been running this for five decades and he sets the expectation harder than most agents will. He does not show a client any gain in a cash value policy for the first ten years. His words: you are lucky if you get back to even. That is a conservative framing, and it is far closer to reality than the illustrations that show a first-year break-even.

Our own numbers: cash value does not exceed cumulative contributions before year four, and break-even typically lands at year five or later for a healthy individual. The capitalization point, where each premium dollar adds more than a dollar of cash value, generally arrives around year three on a well-designed policy. Anything faster is a marketing document, not an illustration.

Early years are the price. Later years are the product.

05 / The mathDoes the return clear the carrier's loan cost?

The return on whatever you deploy must exceed the carrier's loan cost, or you should not borrow. That is the entire test, and it does not soften because the money came from your own policy. Policy loan rates vary by carrier and by rate environment. At the time of writing many carriers fall in the 5 to 6% range, but treat the specific number as a variable to verify with your carrier rather than a constant.

Here is the structure of the decision. You borrow at the carrier's loan rate. The policy keeps compounding on its full cash value, net of mortality and expense charges, adjusted by the carrier's recognition method. The deployed capital earns its own return. If that return is higher than the loan cost, the spread is yours and one dollar has done two jobs. If it is lower, you have borrowed money to lose money on a slower schedule.

Notice what this test does to the marketing version of the strategy. Financing a vacation through the policy fails it. Financing a car fails it unless the alternative financing was more expensive and you actually run the comparison. Financing a piece of revenue-producing equipment, an acquisition, or a real estate deal with a modeled return above the loan rate passes it. The mechanism is neutral. The use is what determines the result.

If the deal does not clear the loan rate, do not borrow.

06 / The tax angleWhy do high earners move taxable retirement money into a policy?

They do it to convert money that will be taxed as ordinary income later into money that can be accessed without triggering income tax, and the decision turns entirely on the marginal rate they pay to move it. This is the plumbing behind the strategy Van Mueller walks through on the podcast, and it is worth stating precisely because the sloppy version of it is everywhere.

The mechanics: a retiree past age 59 and a half takes measured distributions from a pre-tax IRA or 401(k) over a period of years, pays the tax at a rate they control by sizing the distribution, and funds a cash value policy with the net. The federal brackets are progressive, so a household can realize a meaningful amount of income at an effective rate well below its marginal rate. Using illustrative figures from the source conversation, a household realizing roughly $146,500 in a year could remain in the 12% marginal bracket at an effective federal rate near 8%. Brackets and the standard deduction are indexed annually, so those exact figures move every year and should be run against current tables.

Applied to $400,000 moved across 10 years, an 8% effective federal rate is roughly $32,000 in tax. What the household gets for that $32,000 is a pool of capital they can borrow against without creating taxable income under the treatment described in IRC Section 7702, plus a leveraged death benefit that replenishes the estate. We cover the tax structure in more depth in our Section 7702 breakdown.

Two constraints belong in the same paragraph as the benefit. State income tax stacks on top of the federal number and can change the answer entirely. And the tax treatment of policy loans depends on the contract staying in force and staying inside the Section 7702 definition of life insurance. A policy that lapses with a large loan outstanding can produce a taxable gain at the worst possible moment. This is a strategy that requires management, not a set-and-forget structure.

07 / The care yearsWhat happens to the money if you need long-term care?

This is where the structure of the asset separates from every account that holds the same dollar amount. Spending in the final years of life reduces a retirement account balance dollar for dollar. It does not reduce a life insurance death benefit dollar for dollar, because the benefit is leveraged above the cash value.

Run the comparison Van Mueller uses with clients. Two retirees each hold $300,000 earmarked for the last stage of life. One holds it in an IRA. The other holds it as cash value in a policy with a $500,000 death benefit. Both spend $200,000 on care in their final two years.

The IRA holder leaves $100,000 to the family, taxed as ordinary income to the beneficiary on distribution. The policy holder spends from a $300,000 cash value against a $500,000 death benefit, and the family still receives roughly $300,000 income tax free. Same starting balance. Same spending. A $200,000 difference in what reaches the next generation, driven entirely by the leverage sitting above the cash value.

Standalone long-term care insurance solves the care problem and creates a different one. The most common objection we hear is the accurate one: if you never need care, the premium is gone. A permanent policy with an acceleration rider does not have that failure mode, because unused benefit is not forfeited. It becomes the death benefit. That structural difference is why hybrid designs have taken so much share from standalone products.

Self-funding care from a portfolio is the third option, and it deserves the same scrutiny. Setting aside $300,000 to self-insure means that capital sits reserved against a contingency instead of deployed. You would not self-insure your house for the same reason.

08 / Where people get it wrongThe four claims that discredit this strategy

Four specific claims do more damage to this strategy than every critic combined, and they all come from inside the profession. Each one has a precise correction.

"You pay yourself interest"

You pay the insurance company. The interest leaves your control and lands on the carrier's books. The return you get is what the deployed capital earns while the policy compounds on its full value. Every practitioner who says otherwise is either careless or selling, and the moment a sophisticated buyer catches it, everything else you said becomes suspect.

"Life insurance is a great investment"

It is not an investment, and framing it as one loses the argument on the buyer's terms. Van Mueller calls that framing demeaning to the asset, and he is right. Compared to equities on rate of return alone, a whole life policy loses. What it offers is a different set of properties: liquidity without lender approval, tax treatment under Section 7702, creditor protection that varies by state, and a leveraged benefit that self-completes if you die early. Judge it on those and it holds up. Judge it on IRR against the S&P and you should not buy it.

"This replaces your 401(k)"

It does not. A 401(k) is a regulated, tax-deferred account with an employer match and distribution rules set by statute. Those are different features solving a different problem. Van Mueller, who has sold life insurance for 54 years, tells young clients to fund a Roth first. The policy sits alongside retirement accounts. We break down the comparison in infinite banking versus a 401(k).

"Everyone should have one"

The strategy has a specific buyer. Someone early in building wealth, someone carrying high-interest debt, and someone with no identified use for borrowed capital are all better served elsewhere. Saying so is the fastest way to establish that you are not running a pitch.

09 / Head to headLiving access compared to the alternatives

Against the accounts most people already hold, a cash value policy trades early growth for access, tax treatment, and a leveraged benefit that pays whether or not the care years arrive. The table sets a $300,000 position in a policy against the same amount held in a pre-tax retirement account, a taxable brokerage, and a standalone long-term care policy, using the care scenario from Section 07.

10 / The fitHow does this fit into a broader capital strategy?

It fits as one component in a structure, never as the structure itself. The failure mode we see most often is not skepticism about life insurance. It is an agent who positions a policy as the answer to every question, which devalues the client's other assets and, in the end, devalues the policy too.

The right sequence for most high-income households looks ordinary. Fund the employer match. Fund a Roth or backdoor Roth while current rates are historically low relative to where the country's fiscal position points. Hold a working cash reserve. Then, if there is surplus capital and an identified use for borrowed dollars that clears the carrier's loan cost, structure a policy as the capital base. Van Mueller, five decades into selling life insurance, gives the same order and tells clients in their twenties to start with the Roth.

What the policy adds to that stack is a place where capital compounds without market drawdown risk while remaining accessible on your timetable rather than a lender's. For an entrepreneur or real estate investor who has passed on deals because liquidity was tied up, that combination is the point. For someone with no deal flow, it is an expensive way to hold money.

The integration question is the one worth asking: does this make what you are already doing better? If the answer is no, the answer is no. We cover the honest ledger in infinite banking pros and cons.

FAQUsing life insurance while you're alive