Term life and cash value life insurance

Term and cash value insurance are the two basic types of life insurance that companies offer in various forms
Term insurance
Term insurance gets its name because it protects you for a specific “term”—usually a year or a limited number of years. You have to pay more for it as you get older because your risk of dying increases with age. Term insurance does not have a cash value and you cannot cash it in. Once the term ends, the policy no longer covers you. If the policy is renewable, you may buy it for another term at a rate guaranteed in the policy, without providing health information and some other proof of insurability, such as a driving record. However, the renewed policy will usually cost more. Over time, it may be too costly to renew.
Term insurance is well suited to fill a temporary need for increased insurance. If you leave one job for another, you may not have group life insurance coverage through your employer for a short time. Term insurance offers an easy purchase to bridge such a gap. It is also provides you with an option to quickly supplement an existing whole life policy with additional coverage.
Cash value life
For this type of insurance, you pay higher premiums at the beginning of the policy. The company uses part of your premium to set up an account under your policy with a cash value that you may use in a variety of ways. For example:
• You may borrow against a policy’s cash value by taking out a loan. If you don’t pay back the loan and the interest on it, the company will subtract the amount you owe from the benefits when you die. If you cancel the policy, the company will also subtract the loan balance from the cash value you receive
• You can use the cash value to pay an overdue premium on the policy
• You can use the cash value to increase your income in retirement or to provide for other financial needs. However, to build up this cash value, you must pay higher premiums in the early years of the policy
Whole life, universal life, and variable life
These are all considered types of cash value insurance. For whole life and universal life, the life insurance company invests your cash value as a general asset of the company. The interest the company credits to your cash value is based on its earnings.
Whole life
This is the traditional form of cash value life insurance. Also referred to as “ordinary life” or “straight life,” whole life insurance provides coverage for your entire lifetime.