This is commonly called cash-value or permanent insurance. In its basic form, it charges you the same premium for as long as you keep the policy. Because the premium remains level as you grow older, it must be set to exceed the company's cost of insuring your life during the early years. The extra premium and the interest it earns go into a reserve fund. Part of the fund is used to pay the agent's commission and the company's administrative costs. The rest gets credited to your account, where it earns interest. After a couple of years your reserve begins to build, tax free, creating a "cash value" that you can draw on in a number of ways.

You can get at your accumulated cash value by

• borrowing against it while the policy stays in force;
• directing the company to use it to purchase a paid-up insurance policy of some amount;
• directing the company to use it to pay your premiums; or
• surrendering the policy and taking the money.

When you die, if the policy is still in force, the company pays your beneficiary the policy's face amount (less any loan balance), not the face amount plus cash value.

Insurance companies offer a wondrous array of cash-value policies, ranging from the standard, no-frills kind (sometimes called straight or ordinary life) to specially designed contracts in which the premiums or face amounts change according to a set schedule, investment results or some other factor.

Even though some of the excess premiums charged by whole-life insurance policies in their early years may eventually find their way into your pocket via the cash-value buildup, the question remains: Why give all that extra money to the insurance company when you could simply buy term insurance and invest the difference yourself? This is the great debate of the ages in the insurance industry.

What kind should you buy?

• Term Insurance
• Whole-Life Insurance
• Universal Life
• Variable Life
• Variable Universal

Term Insurance

Universal Life




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