First: Chris, welcome to the forum!
Most people on this forum (including me) would probably tell you that if you want to retire early, it is generally best to avoid using "variable life contracts to cover mutual funds as a retirement strategy".
You're probably being sold this approach by a life insurance salesman, although the person may prefer another title implying they are a personal financial advisor or something similar. They may have a lot of cool initials after their name, like CLU, Series 6/7 certified, and so forth. He probably called you instead of vice versa, and probably introduced himself as a friend or business associate of one of your friends (from whom he got your name as a referral).
This person is making this idea look good to you because if you buy the product, a large chunk of the first year or two of premiums, an amount probably in the low four figures, will go into their pocket as a commission. Even the chance of selling you is enough to get some of these salesmen to buy you a couple of free lunches as you discuss the idea.
So have we heard of this approach? Yeah. It's not a new or particularly clever idea, has been discussed and debated in lots of different forums on the web and in financial magazines. While what the guy told you is probably accurate, he's probably limited himself to telling you all the "pros", left out the "cons", and either hasn't told you about or has disparaged other investment approaches that may suit your needs better.
A couple of random comments on what you listed:
1. Yes, the money earned is tax free. However, withdrawals are taxed unless you structure them as "loans" (which is what the advisor will suggest), which is a big hassle and may prevent you from accomplishing what you want to do (take the money out for retirement). Also, a larger than usual amount of your earnings will be deducted for mortality and expenses, the underlying mutual fund fees, and probably others -- the advisor will likely minimize the implications of this, but if you run the math on it you'll see it is a very very big deal. Other investments which also allow "tax free earnings" include 401(k)s, 403(b)s, Roth and traditional IRA's, Educational Savings Accounts, 529 accounts, and buying and holding dividend free stocks in a taxable account. These other investments also don't have some of the aforementioned drawbacks. Buying Vanguard index funds or low-dividend stocks in a taxable account is also nearly tax free and doesn't suffer any of the drawbacks mentioned.
2. Yes, the money earned doesn't even need to be declared. Same goes for all of the other tax free earnings options listed above as well. (The taxable account options would have earnings that would have to be reported every year.)
3. As a 32 year old single "NOT rich" person it's pretty likely that you don't need life insurance at the moment. Therefore, any money you spend on the life insurance component would effectively be wasted.
So for full disclosure, I am 34 (but married with three kids) and on track to retire by age 50 as a multimillionaire. I have received pitches for the same kind of product but don't own any. My wife and I do have a 401(k), 4 IRAs, 3 ESA's, 3 UTMA's, 1 529 plan, two ESPPs, a taxable investment account and a pension. Most of my investments are in Vanguard index funds or individual stocks.
For a good book which I believe might touch on this issue, you might read "The Millionaire Next Door". If it doesn't touch on this issue directly, it might indirectly in terms of philosophies on how to become wealthy...it's not usually in using clever sleight of hand financial tricks but is in patient, deliberate, reasonable, straightforward investments that pay off over a lifetime.
Good luck with your decision.
malakito.
