When buying life insurance, besides considering how much you need, you must all understand and choose between term life insurance and cash value life insurance. Term life insurance and cash value life insurance are the two basic types of life insurance. While term life insurance covers you relatively inexpensively for a set period, cash value life insurance covers you at a much higher cost for the remainder of your life. The cost of cash value life insurance is more but it has a cash value component.

To know more about both these policies, one must understand how they work. Most people prefer term life insurance as it offers the most amount of coverage for the least amount of money. People buy life insurance is to replace a person’s income in case of early death. Term life insurance is the cheapest and best way to do that. It is relatively cheap and provides a lot of protection. Cash value life insurance on the other hand comes at a much higher price and offers protection for your entire life. It is more flexibility than term life insurance. It is also commonly referred to as permanent or whole life insurance. The premium for a cash value policy is generally 10 or more times higher than a term policy with the same level of coverage. The difference is the ability of permanent life insurance policy to gain cash value. A part of the premium in a permanent life insurance policy goes into the cash value portion. At the beginning of the policy, this part is very large but decreases with time. The cash value portion grows over time. You can withdraw money from this cash value portion after a certain period. If you cancel a cash value policy in its early years, you could be subject to penalties or surrender charges. Cash value life insurance has four variations - whole life, universal life, variable life, and variable universal life. The cash value portion works differently in each variation. Whole life insurance has a guaranteed earnings rate on the cash value, and a level premium. In universal life insurance, if you have extra money, you can pay more towards the cash value. If you can’t afford to make a payment, you can skip it or pay less. In variable life insurance, you can invest your premiums. If the investments perform poorly, the death benefit and cash value will decrease. Variable universal life insurance allows you to vary your payments, invest your policy premiums, and vary your coverage amount.

The benefits of cash value life insurance policy make it an attractive proposition but it’s very likely that you’ll overpay for what you get in return. Many term life insurance policies offer a conversion feature which allows the policy to be converted to a permanent life policy. But then again term life insurance is a relatively cheap way to get protection for a set period, and is almost always the better choice. But the final decision is always yours.