Cash-value insurance is more expensive than term life insurance because of the savings element included in the cash-value policy. This statement is True.
1. Explanation:
- Cash-value insurance, also known as whole life insurance or permanent life insurance, includes a savings component in addition to the death benefit.
- The premium paid for cash-value insurance is higher than term life insurance because a portion of it goes towards building cash value over time.
- The cash value in the policy grows tax-deferred and can be accessed by the policyholder during their lifetime through withdrawals or loans.
- Due to the savings feature, the cost of cash-value insurance is higher compared to term life insurance, which provides coverage for a specific term without a savings component.
2. Example:
- Suppose a 30-year-old individual is comparing term life insurance and cash-value insurance policies for a $500,000 coverage. The term life insurance premium may be significantly lower compared to the cash-value insurance premium for the same coverage amount.
In summary, the presence of a savings component in cash-value insurance leads to higher premiums, making it more expensive than term life insurance.
