what is the difference between cash value life insurance and term life insurance?

Question

What is the difference between cash value life insurance and term life insurance? My daughter is 14 years old. Which one I should buy?

Answer 1

Term policies are inexpensive and best for those who are on a limited budget.



Whole life and other types of cash value policies are very expensive and typically require time to accumulate the funds to borrow money from the account. Plus you will be paying additional money to the agent that sold you the policy.



Most of the financial advisers will suggest to select the term insurance as a better use of your money.

Answer 2

The premiums for a term policy will be less then for permanent life policy(cash value policy). - It should be noted that the less is temporary. A 20 year term policy purchased on a 14 year old will have dramatically increased premiums when it needs to be renewed at age 34, and may require proof of insurability. A permanent policy will provide coverage for the lifetime of the insured and premiums while initially higher than the term policy at age 14 will never be subject to increases or further insurability requirements. The term policy will provide coverage for the length of the term. It may be renewable, however your premiums will increase.



A term policy is coverage only. A permanent policy is coverage + cash value. This means the term policy will make a payment of the covered amount upon the death of the insured. The permanent policy will make a payment of the covered amount upon the death of the insured and allow the owner to take a loan against the cash value of the policy while the insured is living, including to make premium payments. The cash value can also be used to continue the policy either as term or permanent life with a reduced death benefit if premium payments can no longer be made. Keep in mind any loans left on the policy would reduce the death benefit also.



One more big difference between term and permanent life insurance is the end. When your term policy ends, it is expired and neither the insurance company or you have any further obligation to each other. When your permanent life policy ends the insurance company is required to send you a benefit check.



Since this is for your daughter and she is 14, be aware of ownership provisions and decide if you will retain ownership of the policy or if ownership will be passed automatically to your daughter when she is of legal age. The best thing about purchasing a life insurance policy at a young age is the incredibly low premium and that your daughter will be able to have this policy when she is older at this price. Unfortunately, inflation rates make this idea unrealistic at best. If this is your plan be sure to check into limited pay or endowment policies and inflation riders. I agree with Brent, if this is meant to be used to finance college a 529 plan or something similar is a better investment choice and you will want to make sure to include an AD&D rider.

Answer 3

The main differences are how long they last, and how much they cost. Term is "pure" insurance - for a set period of time, and costs WAY less. Cash value is whole life, and between the insurance and the savings part, is designed that you have "saved" enough money by the time you're 100, that there isn't any insurance part to it any more.



For the vast majority of people, term life is the tool that gets the job done in the most effecient way.



I disagree with Goose - I'd recommend 20 year term. It locks the rate in for 20 years.

Answer 4

Whole (cash value) life insurance costs more money, but you can keep it for as long as you need it and are able to keep paying for it, so it will pay whenever you die, even if you live to be 95. Also, if you decide not to keep the insurance, you can get back a small amount of money, but much less than what you paid for the insurance.



Term life insurance costs less, but you only get money if you die during the "term". If you are still alive when the term ends, then you lose all the money (but that's still less than you would have lost with cash value life insurance).



If you are going to buy life insurance because someone told you that you could invest money in life insurance, then don't buy it. The person did not tell you the truth. Life insurance is not an investment.



You should not buy any insurance unless there is some other reason to buy it. If there is no other reason, but you are going to buy it anyway, then buy term, because it's cheaper, so you will waste less money.



If the reason you are going to buy life insurance is that she is going to need money for tuition, living expenses, etc., if you die while she is still a student (but not if you die later, because she'll have her own job by then), then buy term life insurance.



If the reason that you are going to buy it is because you will need insurance to pay for your funeral whenever you die, even if it is not until you are 110 years old, then buy a very, very small amount of whole (cash value) life insurance, with a benefit of no more than $10,000 to $20,000.

Answer 5

For a 14 year old, I would suggest a cash value policy. Term insurance is geared more for adults with families because it provides a lot of affordable coverage - but it does not pay a dime unless the insured person dies. For a 14 year old, term is like throwing your money away.



A cash value policy costs more per dollar of coverage, but a portion goes into basically a savings plan. Be careful about three things: (1) Don't believe the agent's projections of how much the policy will be worth. My kids policies said they would have like $40,000 when they were 21, and they had about $6,000. Insurance provides a nice little amount but it should not be treated as college savings or a road to riches, (2) Price out three plans - 20 year life, pay to 65 and whole life. For a teen, you are better off with a 20 year plan. That way you won't be handing her an insurance policy that she has to pay for during the next 40 years, (3) Look carefully for the BS costly features that agents like to bury in policies. Stuff like "inflation protection" and the ability to add coverage every few years seems nice, but you pay through the nose for those "features" that the insurance company should give you for free. Get the plain basic 20 year life, no frills.



Silly goose, you are a silly goose if you think term life is appropriate for a 14 year old. The general rule of term is better than whole applies to adults not in this situation.

Answer 6

Your daughter will be independent after 10 years and will support herself. Till then, you need to be insured in case she loses you and have to live alone. Cash value is an attribute for permanent life insurance. It is a lot more expensive and has emphasise on living benefits for the insured (owner). Many term life insurance policies are convertible to permanent. It is good to have this option.



It is better to concentrate your thoughts on how these money will be used if you are dead and write it on the insurance application and respectively in the policy. She'll need guardian, she'll need home, she'll need good care. You can choose these money to be paid monthly or as a lump sum; During the life of the policy you'll be able to make some changes as well.

Answer 7

If the question was in fact what to buy for your 14 year old daughter, I don't think you need to buy anything unless you just want to cover funeral expenses, then I agree with everyone below about the level term 10 year policy. Your family is not going to suffer a financial loss if she were to pass outside of the funeral costs, so you don't need additional amount since the odds of cashing in are so small.

If you are looking for an investment vehicle for her funds you should look at a 529 College Savings Plan, in which case you can move funds to that and have the funds grow tax free in most cases if withdrawn for educational expenses. You can also transfer that to a sibling (if you have) with no penalty if she was to pass.



If you do decide to buy an insurance policy for her, make sure to tack on an Accidental Death & Dismemberment rider as well. This is incredibly cheap if purchased in conjunction with a complete policy, but you will get a larger death benefit if she were to die due to an accident, which is still one of the most common forms of death for teens and young adults.

Answer 8

Stick to term life. Buy 10 year TERM. (or less).

They will push whole life or cash value on you since it makes them serious money. Think of it as buying an used car. You have to keep your eyes open and be aware that everyone is trying to rip you off.

Answer 9

It depends on how long you want insurance.



Anyone that recommends a specific number of years for you might as well be recommending your favorite flavor of ice cream. How would they know?



And, if you need insurance to cover a 30 year mortgage, for example, and buy a 10 year term policy, then "smart" would not be a good adjective to describe that decision.

Answer 10

i am not quite sure but the life one sounds better