There are three major types of permanent insurance: whole life, universal life, and variable life. 
 All three give you a death benefit and a tax-deferred savings account called the cash value, which you get back if you surrender the policy. (When you do this, you'll owe taxes on any amount that exceeds the premiums you paid.) You can also use the cash value as collateral for a loan at a favorable interest rate. Any loans and interest that are outstanding at your death will be deducted from the benefit paid to your survivors. 

 Ask your adviser what you'd get if you surrendered any policy you're considering after five years. This is an important question: Industry statistics show that 50 percent of the people who buy cash value coverage drop it within seven years. Don't buy any cash value policy whose surrender value at the end of one year is less than 50 percent of the premium.

 Whole life is the most basic type of cash value policy. The premium stays fixed for the life of the policy and part of it buys a fixed death benefit. The rest goes into a savings account. In some whole-life policies, your savings account earns a fixed rate that changes periodically; others pay a fluctuating rate pegged to a specific benchmark, like the return on three-month Treasury bills. Whole-life policies typically guarantee a minimum rate of 4 percent to 5 percent. 

 Universal life combines an adjustable death benefit with a savings account. The savings account pays an interest rate similar to what you'd earn on short- to intermediate-term Treasuries. Within set parameters, you can increase or reduce your premium payments after the policy is in effect, in order to change your death benefit, or to change the amount going into the savings account every month. (In most policies, ifyou want to increase the death benefit, you'll have to undergo another medical exam.)

 Variable life insurance can be bought for fixed premiums or flexible premiums. It combines a flexible death benefit with a savings account that can be shifted at your direction among a choice of mutual fund investments. Variable policies don't guarantee a minimum return on investment; their cash value can go down as well as up. In most cases, if your investments perform very badly, your premiums will go up to maintain the guaranteed death benefit. If they perform very well, your death benefit can go up.

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