This may seem like a rather simple concept. However, as you will see, some consumers and their advisers can t help being confused about the policy s cash value because some life insurance companies use complicated policy pricing and illustration practices.
Term insurance provides a death benefit and nothing more.
It is pay as you go, and as the insured gets older, the premiums increase dramatically. If an illustration for this company is run with no premiums after the first year, the illustration shows the policy terminating after policy year one. Permanent life insurance, which includes whole life, universal life, interest-sensitive life and variable life, is priced to produce relatively level premiums throughout the life of the policy. To do this, it is priced four to eight times higher than the initial term insurance premium in order to create a policy surplus. This policy surplus is known as the cash value, which accumulates on a compounding, tax-deferred basis, and is part of the death benefit.