Cash value life insurance generally has higher premiums than pure term insurance. This is because a portion of the premium is used to pay mortality costs such as term insurance premiums, and a portion goes into a "savings account" for your benefit. That savings component is usually called "cash value" and can be used for supplemental retirement income, a source of emergency funding, to pay down a mortgage, etc. Unlike term insurance, with cash value insurance the death benefit is guaranteed to always be there as long as you pay the necessary premiums. Because of front-end expenses, our consultants recommend cash value insurance be purchased by those who plan to hold the insurance for long periods of time (at least 10 years).

Cash value life insurance has several tax advantages. The growth of cash values in a life insurance plan receive preferential tax treatment, since interest or growth is not subject to current income taxes. Cash withdrawals from a cash value life insurance contract are also accorded tax advantage. Moreover, some cash value life insurance contracts offer investment choices by allowing the customer to select how the money is invested among 10 or 15 "separate accounts". These separate accounts might include stock funds, money market funds, global growth funds, etc. Life insurance that provides these separate accounts is called Variable Life.

Click here for a complete list of Types of Cashvalue Life Insurance

This document was last modified on April 16, 1997

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