When You're Old Enough for Cash-Value Insurance

There are an estimated 190 million individual life insurance policies in force in the United States, according to the most recent figures.¹ 

Interestingly, sales of the two most common types of life insurance policies are almost dead even. In 2002, cash-value policies accounted for 51 percent of sales, and term policies accounted for 49 percent.²

There comes a time in most people's lives when the cost of cash-value life insurance is competitive with term insurance. If you have a term policy that will expire in the next few years, you may want to consider whether it's time to switch to a permanent life insurance policy.³

Grow Into Cash Value
In general, term life insurance policies provide coverage for a specific period. If the insured survives beyond the end of the term, the policy has no value. Term insurance is more affordable when people are young, but the cost to renew the policy rises as the insured ages. In some cases, the policy may not be renewed because of health concerns or high-risk life factors.

A cash-value life insurance policy, also called permanent insurance, is typically more expensive for a young person than a term insurance policy with the same death benefit. However, most cash-value policies offer level premiums, meaning the price never goes up over the life of the policy. In the early years of the policy, the cost of the insurance protection is usually less than the premium. The excess premium amount collected during the early years has the potential to accumulate cash value on a tax-deferred basis. The insurance company invests this for returns that may be used in later years to help pay for the increasing cost of coverage.⁴

Now may be a good time to review your current life insurance coverage. You could find that a cash-value policy becomes more appealing later in life.

1–2) Life Insurers Fact Book, 2003
3) As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. The cost and availability of life insurance depend on such factors as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved.
4) Access to cash value is through withdrawals or loans. Policy loans will reduce the cash value by the amount of any outstanding loan balance plus interest, and will reduce the policy's death benefit.

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