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Using permanent life insurance as an investment provides tax-deferred growth on interest, dividends and capital gains until withdrawals begin. Permanent life insurance policies can be kept until age 100, as long as the premiums are paid. Term policies end at the end of the term.

You can borrow against the cash value of a permanent policy to buy a house or send kids to college without paying taxes or penalties. But the same privileges come with other savings accounts that don’t charge fees or commissions.

Buying a term policy and investing the difference lets all premiums go to securing a death benefit for beneficiaries. There’s no cash value, but the premiums are lower.

A healthy, non-smoking, 30-year-old woman might buy a 20-year term policy with a $1 million death benefit for $480 a year. If she dies at age 49, her beneficiaries receive the $1 million tax-free, and she paid only $9,120 for it.

If she bought a permanent life policy instead, she could expect to pay $9,370 a year. After 20 years, its guaranteed cash value would be $181,630, and she would have paid $187,400 in premiums. If she buys a term policy for $480 and invests the $8,890 difference, she’ll have $480,806 before taxes at an average annual return of 8%.

For the average person, buying term and investing the difference usually makes more sense.

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