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Submitted by: Nancy

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Like virtually every other consumer advocate and personal finance expert, we think that the best buy for most people who need life insurance is a term insurance policy. The insurance industry's answer is cash-value insurance, which has names like whole life, universal life, and variable life. The primary differences between them are: - how the cash-value gets invested - whether the premiums are flexible - whether the eventual death benefit is the same as the face value (with universal life policies it can actually decrease to a guaranteed minimum). The annual premiums for cash-value policies start out high, but some of that premium does get invested - minus the hefty brokers' commissions and other management fees. Those investments are generally projected to grow into a tidy sum. (Of course optimistic projections are just that, and no one knows for sure how any investment will pay off.) Eventually, you would be able to borrow against that cash or withdraw it, and we explain the pros and cons in our ebook Reduce Debt, Reduce Stress. -- but you'll have to wait 5 to 7 years to accumulate any significant cash value. And since the cash value shores up your death benefit, and earns part of your premium, if you withdraw it, your heirs will get that much less. In the meantime, your premiums may increase, or your policy may be canceled. Unfortunately, many cash-value policyholders drop their coverage in the first 2 years, and most have canceled by the 7th year of the policy. The high premiums often prove too difficult to maintain. There's one definite upside to whole life insurance. They can remain in force all your life. But how likely is it that you'll still be supporting dependents when you're in your 80s or 90s? But overall, your instinct is correct. It's too good to be true!

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