Like Term Insurance, Cash Value Insurance pays a death benefit when the insured individual dies, but it also has a savings component. The buyer of a cash value policy pays more in the early years than for term insurance, but the premium not needed to pay for the cost of the death benefit accumulates with interest within the policy. If the policy is given up before the insured person dies, there may be a cash value paid to the owner, less any outstanding loans placed against the policy. Proponents of cash value life insurance, urge consumers to buy a policy that is "equally indexed." With this type of insurance, a policy pays interest based on the upward movement of the stock market. These cash value policies use one of several formulas, and it is these constructs that determines how much you can potentially earn.

Experts say not to buy a cash value life insurance policy if you plan to surrender early due to major surrender penalties. If all premiums are paid, cash value insurance usually lasts for the entire life of a person and pays death benefits to the beneficiaries named in the policy upon the death of the insured. The cash value can also be used as loan collateral for borrowing money at the interest rate spelled out in the policy. Some experts feel that because you have to pay the money back at high interest rates and for other reasons, cash value policies are a trap to be avoided. They advise purchasing term insurance and putting the additional money you would have paid into a cash value policy into safe investments like mutual funds.