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Why do rich people use whole life insurance as an asset class to sock away money?

High early cash value - a permanent policy that uses your human life value as collateral is an asset that can be converted into a strategy to replace the use of institutional banking. That's a big bold statement that is widely misunderstood.

To understand this, think of permanent insurance as similar to real estate owned. They are both assets that build equity.

Real Estate is an asset that increases in value, but has the risk that market values can be volatile just like the stock market. Until you liquidate it, you do not have a guarantee of its value.

Permanent insurance is an asset that increases in value, guaranteed, it has no risk of its value diminishing. You can leverage and liquidate its value, with the guarantee that your value is increasing.

Depart from debt and enter a capital creation mindset.  

If you can grasp this concept or "catch" it as the late Nelson Nash puts it--it will change how you think of money. Nelson Nash was the Austrian trained economist that pioneered this concept and talks about it in his must-read book, Becoming Your Own Banker.

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There are a lot of people on the internet who have strayed away from the roots of what Nelson Nash taught.

This strategy has been over simplified by some. So much so that companies like Mass Mutual have stopped wanting to do business in this sector. These are people that are abusing a strategy that is supported by economists and very smart people. Just like during the time of the mortgage boom, when everyone thought to pull cash out of their equity to buy liabilities, like a car or other "things" that were not productive assets. This strategy is not for everyone, and used without discipline is a doomed approach.

If you intend to leverage equity to build an asset and pay the equity back, this is brilliant. If you leverage equity to buy "things," you become further in debt with non-producing assets and it becomes the opposite of a snowball of cashflow. You become buried in debt further.

Don't use a liability to buy for more liabilities.

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