For Consumers

Types of cash value life insurance

Whole life

  • Whole life insurance is also referred to as “ordinary life” or “straight life.” It provides coverage for your entire lifetime.
  • The premium depends on your age at the time you buy and stays the same as you grow older. The lowest premiums go to those who buy it when they're young, because they'll pay into it the longest.
  • Your cash value grows based on a fixed interest rate set each year in your policy by the company.
  • Some whole life policies let you pay premiums for a shorter time, such as 15 years or until you reach age 65.
  • Premiums for these policies are higher because you make premium payments during a short time frame.

Universal life

  • Universal life insurance is also referred to as "flexible premium adjustable life insurance." It features a savings element (cash value) that grows on a tax-deferred basis.
  • The insurer invests a portion of your premiums. The return on the investment is credited to your policy tax-deferred.
  • Universal life insurance offers a guaranteed minimum interest rate, which means the insurer guarantees a certain minimum return on your money.
  • If the insurer does well with its investments, the interest rate return on the accumulated cash value increases.
  • Many universal life policies offer a no-lapse guarantee. This means as long as you pay the minimum premium, the policy will stay in force to maturity. However, paying the minimum guaranteed premium is rarely sufficient to build up significant cash values.

Variable life

  • The death benefit and cash values vary.
  • The company invests your cash values into separate investment accounts, such as portfolios of stocks, bonds, and other investments. These separate accounts are like mutual funds.
  • The company should provide you with information (also called a prospectus) that describes each separate account.
  • As the policy owner, you choose the separate accounts to invest the cash value.
  • The cash values and death benefit vary due to increases or decreases in the value of the separate accounts.
  • You take the investment risk as the policyholder.