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kendell c | Term or Whole life insurance which is best for 18 yr old female and what is the difference? |
Is $12 per month a good premium for a 30k term life policy for the 18 yr old female?
Additional Details
Everyone should have some life insurance coverage to pay for funeral expenses. I believe this is what she wants it for that and a little something to pay off any bills she may have. I thought it was a bit too high for only 30k. |
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Doing the Right Thing
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Whole life insurance is a type of plan that contains savings in it. It is an insurance plan in which you are covered for life as long as you your premiums.
The technical word for savings in a life insurance policy is called "cash value." Your cash value grows tax-deferred, but at a slow rate of around 3-4% over the long term. During the first two years of the policy, no cash value is accumulated. Because of the cash value feature, whole life insurance is said to be very expensive. If you wish to use the cash value at anytime, you have take a loan out of the cash value. As with any other loans, you will owe monthly interest on it. (do you like to borrow your own money?). If you die someday, the insurance company keeps your cash value, but pay the face amount to your beneficiary. You may use the cash value to fund your retirement. However, using your cash value for withdrawals, loans, surrenders, or other options will reduce the death benefit.
Term insurance is a type of pure protection in which you don't plan to have life insurance for your entire life. Most term policies contain a provision to continue coverage to age 100. There is no cash value in it, so term insurance is inexpensive to purchase. Because it cost so little at the beginning, this enables you to find the right savings vehicle to meet your objective. This gives you better control of where you want your money to go instead of leaving it up to the insurance company. You may use your savings to fund your retirement without affecting the face amount of your life policy.
Now $12/month for a $30,000 policy on a term policy sounds about right because prices between companies are competitive. Depending on what kind of term policy you are getting. Is this 30 year or 20 year? If this was a 30 year term, then thats the competitive rate. If this was a 20 year term, you are paying a bit too much (about $2-$4 more than other companies).
If she bought more coverage, say $150,000, then the cost per thousand coverage goes down. Many insurance companies have different rates for a range of coverage amount. For example, an insurance company may charge $1.60 per thousand coverage on a 30 year term for any coverage below $150k. From $150 to below $300k, they may charge $1.50 per thousand. From $300k to below $500k, they charge $1.25 per thousand and so on. (These are hypothetical numbers and only an illustration to show that the more coverage you buy, the less it cost per thousand coverage. Of course, the shorter the term period, the cheaper it is per thousand.)
If this was whole life insurance, you would be paying at least $100/month on a $30,000 policy. |
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529s.com
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I just ran a quick quote for an 18 year old female with $500,000 of coverage and it came to $14.88 a month. |
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Joe
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For most people it is best to buy term life insurance. Life insurance plans that builds up a cash value like whole life, universal life, et cetera are rarely the best choice.
If you look at financial sites not run by insurance companies, they are almost unanimous in recommending term life insurance. Look at big name sites like Yahoo,CNN, Motley Fool SmartMoney.com and Kiplinger's, and they all recommend term life insurance for most people.
However, you will find many websites out there that promote whole life insurance and disparage term life insurance. They are almost all run be insurance companies. Insurance companies make more money from these policies and it is in their interest to push them.
Whole life has the advantage of having a built-in savings program, but you lose a lot of money to high commissions. It is usually better to buy term life insurance and invest the money you save in an IRA, 401K, or mutual fund. There are, however, rare cases where whole life is better and these are discussed in the articles below.
However, if you have no children or other dependents, you probably don't need any life insurance at all. See the articles below.
Sources:
Term vs. Whole Life Articles:
http://www.fool.com/insurancecenter/life/life06.htm
http://finance.yahoo.com/insurance/article/101749/Term_or_Whole_Life?
http://money.cnn.com/pf/101/lessons/20/index.html
http://www.smartmoney.com/insurance/life/index.cfm?story=whichtype0205
http://www.kiplinger.com/basics/archives/2003/03/life3.html
General Information on Life Insurance:
http://www.fool.com/insurancecenter/life/life.htm
http://finance.yahoo.com/how-to-guide/insurance/12823
http://money.cnn.com/pf/101/lessons/20/index.html
http://www.kiplinger.com/basics/archives/2003/03/lifeinsurance.html |
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View from a horse
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Twelve dollars a month for only $30,000 of term for an 18 year old female seems a little high, unless she's a smoker or is overweight. At age 18, $12 / month should buy her $50,000 or maybe even $100,000 of term insurance if her health is good and she doesn't use tobacco.
Firstly, Whole Life, Universal Life, or any type of permanent cash value life insurance IS NOT AN INVESTMENT AND SHOULD NEVER BE SOLD OR BOUGHT AS AN INVESTMENT.
In most states it is illegal to refer to cash value life insurance as an investment vehicle; and, if an agent tries to sell it to you as such, you should RUN and report them to the appropriate state agency.
Now. Having said that, that does not mean that permanent cash value life insurance is never a good idea. It MIGHT be a good idea, depending on your particular need.
Permanent cash value insurance has many good uses, but it should not be used as a savings plan, a retirement plan or investment plan. Even variable life and universal life should be bought for PROTECTION, not for savings and investment.
They do have uses, however, and in many cases are the best for a person's needs (especially in business insurance situations). That is why it is best to seek out a qualified financial planner or consultant to help you make the best decision for your unique situation and needs.
-View From A Horse,
CLU, ChFC, RHU, FLMI |
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J.R.
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TERM!!! Whole life is sold as an investment, and is not a good one.
My suggestion would be to buy the appropriate amount of term life, and then put a little away each month in some kind of savings. Even a CD at the bank will out-perform whole life.
If someone is trying to sell you whole life as an investment, please do not take investment advice from this person. EVERY financial counselor I know recommends against whole life in almost every case. |
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Hiroshima, Get Over it
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That rate is wayyyyyyy too high. |
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Click
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I have found the source box to be a good resource for this type of insurance. There are a variety of ways to go about this so I suggest you research some of the companies for their offers. |
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mbrcatz
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No, it's crap. You should be able to buy $100,000K for 20 years, renewable and convertable, for $100 a year.
But the more important question - WHY does an 18 year old need life insurance? What is it you want this insurance to DO for you?
I would NOT buy whole life, period. The same amount of whole life would cost you about $2500 a year; you're better off putting it into an indexed mutual fund, you'll have your $100,000 by the time your 40, you don't even have to DIE FIRST. |
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