Does Life Insurance Accrue Interest? 
Term insurance does not accrue interest and whole life policies accrue dividends . Universal life insurance does accrue interest . There are 3 different types of universal life insurance that will accrue interest : Fixed Universal Life - accrues interest based on a rate by the insurance company Indexed Universal Life - pays interest determined by an external index , such as the S & P 500 . If the index goes up , then interest is paid , usually up to a cap . If the index is negative , then there is usually a floor of 0 - 2 % , so no interest may be paid , but this policy provides downside protection . Variable life - interest is paid according to the stock or bond market . This cash value in a variable policy may go up or down depending on the market . 