The time-honored definition of affordable life insurance is that it provides for a stipulated sum to be paid to a designated beneficiary upon the death of the insured. In a very real sense, low cost life insurance is capital formation.

Capital is usually defined as the value of accumulated goods which are devoted to the production of other goods, and accumulated possessions calculated to bring in income. Formation is defined as an act of giving form or shape to something, or of taking form.

After an insured person dies, capital is formed when the death benefit (the face amount of the affordable life insurance policy) is paid to the beneficiary. The initial value is the death benefit. The value can be used to produce other goods or to bring in income depending upon how the beneficiary decides to use it.

Looking for life insurance as a vehicle for capital formation will allow you to determine whether it is the proper vehicle for you to use to create capital for your own specific needs-needs which could take the form of protection for your family, protection for a business obligation, or provision of supplemental retirement income to yourself, just to name a few of many possibilities.

When you buy term insurance, you buy only protection. There are no living benefits from term cheap life insurance because there often is no cash reserve building up. As a result, there usually is no cash-surrender value, and capital cannot be formed before the insured dies. My goal is to cut through the confusion caused by lack of plain talk and to give you full disclosure, telling you what esoteric terms such as "cash value," "present value," and "tax-free buildup" really mean.

Since most variable life policies pay no dividends, the only way to get living capital formation benefits from variable life is to borrow against the separate investment account, i.e., the cash-surrender value of the policy.

Unlike other ways to create capital (e.g., regular savings, investing in a mutual fund, or investing in a business), affordable life insurance chiefly forms capital when the insured dies. But, depending upon the type of cheap life insurance quotes, capital may be formed without the insured having to die-e.g., by borrowing against the cash reserve (cash-surrender value) of an insurance policy, or by using paid-up dividends (paid by an insurance company on a policy that is fully paid up) to provide a capital stream of income.