By Hans Goldstein, Founder, Retirement Literacy Foundation. He is also a licensed California insurance producer (#4273294). Education, not a product recommendation.Published · Methodology dated October 3, 2026
In a transparent model on the 2017 CSO mortality table, a well-funded policy bought at 35 reached its premiums paid in year 6 on a steady 6% credit and never did on the guaranteed basis. Meanwhile, published lapse data show 57% of permanent policyholders lapse within 10 years, before most of the curve.
The shape
Early years carry premium loads, policy fees, per-thousand charges and surrender charges. Once those run off (about year 15 in this model) and the account is large enough to compound, the curve steepens. On the guaranteed basis there is no hockey stick at all: the line is flat or falls.
| Issue age | Design | Break-even year | Yr 5 | Yr 10 | Yr 20 | Yr 30 | Lapse age |
|---|---|---|---|---|---|---|---|
| 35 | Max-funded ($167k) | 6 | 97% | 119% | 192% | 338% | none |
| 35 | Max-funded | Never | 79% | 83% | 85% | 83% | none |
| 45 | Max-funded ($139k) | 6 | 95% | 117% | 189% | 333% | none |
| 55 | Max-funded ($116k) | 7 | 92% | 114% | 183% | 321% | none |
| 65 | Max-funded ($97k) | 8 | 89% | 109% | 170% | 290% | none |
| 65 | Max-funded, guaranteed | Never | 66% | 69% | 67% | 62% | 103 |
| 65 | Target ($291k) | Never | 54% | 77% | 96% | lapsed | 93 |
| 65 | Target, guaranteed | Never | 21% | 29% | lapsed | lapsed | 82 |
Surrender value as % of premiums paid. Illustrated 6% unless marked guaranteed. Hypothetical.
Why buying for cash value at 65 rarely works
- The cost of insurance climbs fast. On the 2017 CSO table, the annual death rate per 1,000 (the guaranteed maximum cost per $1,000 at risk) is 7.96 at 65, 24.24 at 75 and 82.34 at 85: about 3 times the age-65 rate by 75 and 10 times by 85.
- Surrender charges run 10 to 15 years, to about age 75 to 80.
- The return is thin even when everything goes right. Max-funded at 65 on a steady 6% credit, the model’s surrender value return is about 4.1% a year to age 85. Target-funded at 65 loses money and lapses at 93 on the illustrated basis, and at 82 on the guaranteed basis.
If anyone pitches a 65-year-old a cash value policy as a savings plan, they either have not run the cost of insurance or are not putting the buyer first. At 65 and older, permanent life insurance is a death benefit or estate tool. That can still be a good reason to own it.
Many owners never reach the upturn
LIMRA data (2012) cited by economists Daniel Gottlieb and Kent Smetters in the American Economic Review (2021) show 29% of permanent policyholders lapse within 3 years of purchase and 57% by year 10. Lapsing in the flat part of the curve means paying for the expensive years and leaving before the payoff.
Buy term and invest the difference: works if you invest
The classic alternative is to buy cheaper term insurance and invest the premium you save. For disciplined savers it can work well. The catch is behavioral: we found no study that directly measures whether term buyers actually invest the difference. For context, the Federal Reserve’s 2022 Survey of Consumer Finances found 54.3% of families had any retirement account, with a median balance of $86,900 among holders. A policy’s required premium works as forced savings for some people; for others it is an expensive way to save. Either way, decide based on the years you will actually keep it.
Methodology (dated October 3, 2026)
The chart and table come from a transparent cash value model published with this page (CSV). Mortality: Society of Actuaries table 3291, 2017 Loaded CSO, smoker-distinct nonsmoker male, age nearest birthday (select and ultimate). Assumptions typical of indexed universal life design: $10,000 a year for 15 years; increasing death benefit while paying, then level; max-funded face is the smallest face whose 7-pay premium (2% 7702 rate) covers the premium, target-funded is three times that; premium load 10% in years 1 to 10 and 5% after; $10 monthly fee; per-$1,000 charge of $0.10 to $0.40 a month for 10 years by issue age; surrender charge $25 to $60 per $1,000 grading to zero by year 15; current cost of insurance 80% of 2017 CSO select rates, guaranteed 100% of ultimate rates; 6.0% flat credit (illustrated) or 0% (guaranteed). It is hypothetical, not an illustration of any policy, and actual policies differ. Lapse statistics are as cited by Gottlieb and Smetters from LIMRA data. Checked October 3, 2026.
Sources
- Society of Actuaries, 2017 Loaded CSO Nonsmoker Male ANB (table 3291)
- Gottlieb and Smetters, Lapse-Based Insurance, American Economic Review 111(8), 2021 (accepted manuscript), citing LIMRA (2012) lapse data
- Federal Reserve, Changes in U.S. Family Finances from 2019 to 2022 (SCF)
- NAIC Actuarial Guideline 49-A (indexed universal life illustrations)
- California Insurance Code 10509.956 (guaranteed, midpoint and illustrated values)
Goldstein, H. (2026, October 3). Cash Value Takes Time: The "Hockey Stick" in Permanent Life Insurance. Retirement Literacy Foundation. https://retirementliteracyfoundation.org/research/cash-value-hockey-stick/
Journalists and educators may quote and chart these findings with a link to this page. Data: download the CSV.
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