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INSURANCE CENTER: Life

What are the differences between term life and cash value policies?

Life Insurance
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Term life insurance is just that -- life insurance, and nothing more. Your premium payments are applied 100% to the cost of the insurance. As retirement approaches, your need for life insurance is likely to decline, as children become able to support themselves (even if your own little "rebel without a clue" may not yet be willing) and retirement savings begin to approximate a lump-sum life insurance payment. At this point, term insurance is easily dropped, without penalty.

The second class of life insurance encompasses a wide variety of financial products that are often lumped together under the label "cash value insurance." Examples are whole life, universal life, and variable life. These products combine term life insurance with a long-term, tax-sheltered savings plan.

The most important thing to understand about cash value policies is that they are designed to be held for life. That is why we put that sentence in bold type. There are usually significant up-front charges associated with setting up the savings plan, investing the money, and paying the agent's commission. Even with these charges, tax-sheltered savings can still catch up to taxed investments and begin del