Life Insurance is a very tax favorable financial tool. Not only is the death benefit tax-free to the beneficiary, but the cash value of a permanent life policy can be accessed on a tax-free basis if done correctly. The tax break is part of the internal revenue code 7702. To read a good article that explains this you can go to :

http://denver.bizjournals.com/denver/stories/2006/02/13/smallb2.html

Basically, when you buy a cash value policy, part of the money goes towards the insurance cost and the rest is put in a savings or investment account (if it is a variable product). Each policy has a limit of how much money can be put in the policy because of the tax advantage treatment. For example, a whole life policy will have a monthly premium and then an amount over an above that can be put in up to the ceiling. If money is put in above the ceiling, then the contract becomes a modified endowment contract and the cash value becomes taxable.