| There are life insurance policies that benefit you in two | | | | pay higher premiums. These policies are much more |
| ways: they pay in the event of death and they allow | | | | expensive than term insurance. |
| you to accrue tax-deferred savings. It can be a bonus | | | | According to the Life and Health Insurance Foundation |
| if you are in need of insurance anyway, but you | | | | for Education (LIFE), whole life policies provide you with |
| shouldn't buy an insurance policy as a way to save | | | | a guaranteed death benefit, plus a guaranteed rate of |
| money. There are better, more economic ways to | | | | return on your cash value. Your set premium is |
| save. | | | | guaranteed to never increase. |
| The most common form of life insurance is term | | | | With a universal life policy, your insurer separates your |
| insurance. It doesn't build savings; instead, you are | | | | death benefit from the investment portion of your |
| basically renting a policy. You pay a fixed premium for | | | | premium. The investment dollars are placed into bonds, |
| a preset amount of years, like five, 10 or 20 years. | | | | mortgages and money market accounts. Your |
| Your premium remains the same each year. If you die | | | | investment fund will pay for the cost of your set death |
| during the period, the insurance pays you the amount | | | | benefit. Even if your investments do poorly, you will be |
| of life insurance that has been promised. Once the | | | | guaranteed a minimum death benefit. If you do well, |
| term is up, the coverage ends. All promises between | | | | your beneficiaries receive more money. |
| you and the company are cancelled. If you outlive the | | | | A variable policy has death benefits and cash values |
| coverage or if you cancel the policy, you will not | | | | that vary based on the performance of underlying |
| receive any benefits. This is simply a death benefit, not | | | | investments. You assume a greater risk by trying to |
| any form of savings. | | | | achieve greater returns. |
| Permanent insurance policies cover you for life and | | | | There are instances where permanent life insurance is |
| offer a tax-deferred savings opportunity for as long as | | | | a better fit than term insurance for a family. If you |
| you pay the premiums. There are primarily three | | | | have a disabled dependent that will need long-term |
| variations of permanent insurance: life, universal life and | | | | care, a permanent life insurance policy might be your |
| variable life. | | | | best choice. Most parents only insure themselves for |
| Permanent life insurance provides you with an | | | | as long as they have children and school and are |
| opportunity to build cash value in addition to the death | | | | working outside the home. In your situation, you may |
| benefit. The face value of the policy is the amount of | | | | want to insure yourself for your entire life. |
| money that is paid at death or policy maturity. Most | | | | Permanent life policies can be hard to understand. Be |
| permanent policies will mature when you reach 100 | | | | sure that you understand all for the terms before you |
| years of age. The cash value amount is available to | | | | buy a policy. Most advisors say that you shouldn't use |
| you if you die or surrender a policy before its maturity. | | | | these policies for saving for retirement or a college |
| The cash value of your policy will grow until | | | | education. There are better options through a 529 plan, |
| tax-deferred until you withdraw it. You are able to | | | | prepaid tuition plan, Coverdell Plan, a 401(k) or an IRA. In |
| borrow against the cash value of your policy, but if you | | | | these plans, you do not have to pay for an insurance |
| don't repay it your beneficiaries will receive reduced | | | | premium to build your money. |
| benefits. In order to build cash value, you will have to | | | | |