Does Life Insurance Accrue Interest? 
Depending on the type of policy , it can . With universal life policies , most use an interest rate applied to the cash accumulation account . With these plans , the gains from the paid interest rates are tax deferred . With traditional whole life policies sold by mutual companies -LRB- those who also pay dividends -RRB- the gains can be contributed to an interest bearing account . However , using this option does create a current taxable income on the gains the account has . So , not really the best option for a life insurance policy where the goal may be tax deferral on the gains . 