Tax-deferred accumulation is the growth of investment or policy values without current income tax on interest, dividends, or capital gains, allowing earnings to compound faster over time. In life insurance and annuities, policy cash values and annuity account values typically grow tax-deferred as long as gains remain inside the contract. Taxes are generally due only when funds are withdrawn, surrendered, or annuitized, and death benefits from life insurance are usually received income tax free by beneficiaries. Tax-deferred accumulation can be especially powerful for long-term savings and retirement income planning, but it must be weighed against product fees, surrender charges, and the ordinary income tax treatment that often applies to distributions.

Advisors highlight tax-deferred accumulation when comparing annuities and cash value life insurance to taxable accounts like CDs or brokerage accounts. They illustrate how deferring taxation improves long-run accumulation, particularly for clients in high current tax brackets. In retirement planning, advisors coordinate tax-deferred accumulation with Roth and qualified plan strategies to diversify future tax exposure. They also explain ordering rules for withdrawals, such as interest-out-first in non-MEC life policies or last-in-first-out in annuities. Understanding tax-deferred accumulation allows advisors to present realistic, compliant projections and to position insurance products as one component of a broader, tax-aware financial plan.