The costs of cash-value insurance

Term insurance is simple. Cash-value, as you may have guessed, isn’t so simple. Cash-value is also much more expensive because you’re paying not only for the protection, administrative fees, and commissions, but also to build up the investment so that the interest it generates will pay the costs of the protection, fees, and commissions. In addition, you’re paying more for the flexibility a cash-value policy gives you. The one thing that’s simple about cash-value policies is that the premium remains the same for the entire time. So what changes? Well, everything else, including, in many cases, the amount that goes to your survivors. When you purchase a cash-value policy, you pay a set premium based on the amount of protection you’re buying, the amount needed to pay the insurance company’s other costs, and the guaranteed amount that will accrue in your account. How all those numbers are configured is an extremely complex formula based on amortization tables, actuarial mortality charts, and contracts with life insurance salespeople.
Unless you have a burning desire to wade through the numbers, the only things you really have to be concerned with are

• How much protection you’re buying (so that the death benefit is sufficient for your needs)
• The amount of your total premium (to be sure that you can afford the monthly payment)
• The guaranteed return (so you know how much will go into your investment)