Which Is Better: Term or Cash Value?

There is no simple answer to which type of life insurance policy -- term or cash value -- will be better for you.

Typical term insurance buyers: If you are just starting out, and have lots of personal financial responsibilities, term insurance may be the way to go. But if you do this, you must remember that the policy will provide no savings for you in the future. The idea that you should buy term coverage and put the difference between the term cost and the higher cash value policy cost into an outside investment just doesn't work for many people: They buy the cheaper insurance, then do not manage to invest what they have saved over the more expensive cash value policies.

A good alternative for these term buyers would be to set up an automatic withdraw arrangement under which an amount equal to the "difference" is deposited and invested in an investment chosen by the policyholder (such as mutual funds, etc.). Banks, brokerage houses and insurance companies can set up such an arrangement.

Typical cash insurance buyers: If you are not strapped for cash or heavily laden with personal financial responsibilities, and you think of your life insurance policies as lifetime companions, you may want cash value insurance. If you decide to do this, you'll have a lot of choices of cash value policy types. The traditional whole life/ordinary life policies will give you a guaranteed premium amount, a guaranteed death benefit amount, and at least a guaranteed minimum build up in the policy cash values. Other, more modern cash value policies offer the possibility of greater investment returns, but these returns depend on how well the policy's individual investment fund performs.

You really should take a look at a quick comparison of various common types of cash value and term policies.

Regardless of how well it appears that a life insurance policy performs as an investment, it is highly unlikely that purchasing it will make sense if you have no need for the additional death benefit protection. All life insurance policies -- even those that emphasize the growth of cash values over death benefits -- must provide for death benefits (for which a portion of your policy premium must go). If you don't need more death benefit protection, you shouldn't have to pay for it! By putting your money in a non-insurance investment, all of the money invested (less any applicable fees) would go to purchase your investment fund.

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