What type of life insurance is best?

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PostPosted: Mon Nov 04, 2013 8:25 am   Post subject: What type of life insurance is best?  

My daughter is just 12 and in school. Her health is in good condition. I was thinking about getting her a policy. What policy would be suitable for her?


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PostPosted: Wed Nov 06, 2013 12:08 pm   Post subject:   

How much income does she bring home? That's the basis for determining life insurance needs. Life insurance = income protection. I would expect that answer to be $0. And as a result, there is no suitable policy for your 12-year-old child.



Many life insurance agents, on the other hand will use fear tactics to goad you into believing that the most important aspect of life insurance for a child is "protecting her future insurability." That is only a minor point, but the anxiety it can produce often causes a person to purchase $100,000 or more of life insurance, and today the most likely product that would be presented to you is some form of universal life insurance, probably an indexed form, which appears to be low cost initially, but can become extremely expensive in a person's later years.



If you want to do that, it's up to you, but DO NOT FALL for the numbers shown in a sales illustration that purport to show millions of dollars of cash accumulation with only $250 (or $1000) per year of premiums. It is highly unlikely to ever happen as shown. Ask the agent to explain why the numbers in the GUARANTEED columns of the illustration eventually drop to $0. Forget the numbers in the CURRENT or NONGUARANTEED columns. Those are the ones that will be pointed out to you, but they assume a straight line rate of return at a given interest rate, which will NEVER happen, and they assume that the current "cost of insurance" and other policy expenses will never increase, which is also unlikely to be true over the next 107 years of your daughter's lifetime, which is how long premiums will need to be paid in most policies offered today.



Worse yet is the agent who lies and tells you that after about seven years the policy will pay for itself. That may be true for a few years, but it will not be true forever. And when the policy runs out of cash value, it will die or demand huge additional premiums to keep it alive.



If your concern is having funds to bury her in the event, God forbid, that she were to predecease you, then a burial policy of about $25,000 will be sufficient. Policies like that could be either cash value life insurance or lower cost term life, and for a 12-year-old child, would be extremely low cost -- not more than about $10-$20 per month at most. At her age, you can still purchase a Gerber or Globe Life & Accident "baby life insurance" policy, which is a cash value policy, in that price range.



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PostPosted: Mon Nov 11, 2013 1:52 pm   Post subject:   

I am one of those agents who believe that protecting future insurability is a great thing to do provided that the person can easily afford the premium and has all of their own financial bases covered. I have met with way too many people who need coverage and can't get it at decent rates. The one thing that the vast majority have in common is that they were healthy in their youth.



My recommendation, for the times that it is appropriate, is almost always a whole life policy with guaranteed future purchase options. For example, one can buy a $100,000 policy that guarantees that they can purchase $1,000,000 in the future.


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PostPosted: Mon Nov 11, 2013 5:19 pm   Post subject:   

Quote:
My recommendation, for the times that it is appropriate, is almost always a whole life policy with guaranteed future purchase options.
That's well and good, and I would not necessarily argue against it.



And even setting aside the guaranteed future increases, however, most life insurance agents are not going to do that for one reason: the cost. A $100,000 policy for a 12-year old still has to accumulate $100,000 in cash value over the next 116 years and account for 116 years of insurance company mortality risk. It's not going to be a $48 per year policy like a $5000 Gerber baby life policy that increases to $10,000 at age 21 or 25, with no increase in premium. (The additional increases to get to a $1,000,000 death benefit in a WL policy are not going to be inexpensive either, and there is an added cost for the privilege of adding the additional amounts even if not exercised, which then is a waste of money.)



Instead, most agents today will push an Indexed Universal Life policy with an illustrated interest crediting rate of 8% or higher -- which is probably absurd on its face given the fact that nothing stock market-related performs in a straight line fashion -- and that results in a tiny premium for a 5 year old with what appears to be massive cash accumulation by age 100 or so. The result is a small premium that is unlikely to support the cost of insurance in later years when the policy has fallen off track due to poor interest crediting in all or most of the preceding years.



The reality is that in any UL policy, those outcomes almost never happen -- at least not anywhere close to the illustrated values.


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PostPosted: Wed Nov 20, 2013 12:29 am   Post subject:   

Do you have children's critical illness insurance in the US? Might be an alternative to life insurance if you prefer not to go down that route.

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PostPosted: Wed Nov 20, 2013 2:17 am   Post subject:   

This makes absolutely no sense. Life insurance vs critical illness -- these are not "alternatives" -- they are two completely different needs.



What exactly is your point?



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PostPosted: Mon Dec 16, 2013 7:59 pm   Post subject:   

At the age of 12, you could make a case for all types of insurance to be suitable, it all depends on the purpose of the insurance. Want to provide a death benefit just in case? Then possibly term. Want to make sure she is insured for the rest of her life? Some sort of permanent Plan.



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PostPosted: Sat Jan 04, 2014 9:07 am   Post subject:   

It depends on the purpose for which you have taken insurance may be it is for death benefit or critical illness . Just to add riders to your insurance plan can weigh on your plan fund value

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