If you read our article Straight Talk on Life Insurance, you know how strongly we feel that insurance should not be used as an investment. That's exactly what cash-value policies are and we fume at the way agents pitch it as an "investment." And what's more, we think investments within an insurance policy turn out all too often to be bad investments.

Cash-value policies are considered permanent insurance because the policies stay in effect as long as you continue to pay the premiums - unlike term policies, which expire at a specified time. There are many variations on the permanent insurance theme, with an array of names that a customer like you or us might find confusing. That's all good as far as salespeople are concerned - their goal is to make the policy sound complicated so that you'll think you need to leave the details in their hands.

You'll hear such names as:

• Modified-premium whole life
• Limited-payment whole life
• Single-premium whole life
• Flexible-premium adjustable life
• Interest-sensitive whole life
• Universal life
• Variable universal life

As you can see, a lot of these policies are either whole life or universal life. Basically, whole life is a permanent policy in which the premiums are the same for the entire life of the policy. You accumulate a cash reserve within the policy but the insurance company, not you, decides where it is invested. Typically, the company invests it in low-risk securities, such as corporate bonds and mortgage-backed securities.

If you cancel your policy–which you should do cautiously if you no longer need life insurance at some point–you receive the cash value back in a lump sum. But don't expect this lump sum to buy you a dream castle! Administrative costs and agents' commissions will eat up enough that the cash-value side is more or less a joke if you're expecting–or are led by an insurance agent to expect–serious growth.

Universal life refers to policies that combine the protection of term insurance with a savings or investment component.

Whatever the kind of policy, you can be sure that the increase in value will generally be modest at best, if there are any profits at all. That's why we don't like how the industry confuses insurance policies with investments!

Even among the better life insurers, a policy must be held more than 20 years to realize a decent return on premiums paid. You wouldn't believe how much of your money can disappear in sales commissions and related expenses.

Saddest of all are the industry statistics indicating that close to 20% of all cash-value policies terminate in the first year, and that 40% terminate in the first 10 years or so because the policy owners don't keep up the payments. If you surrender the policy early on, you get nothing, plus you will be required to pay surrender fees. Some agents will promise that you'll get your money back if you surrender the policy in 10 years, but what they don't tell you is that you won't get the interest.

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