You are hereDave Ramsey slams whole life
Dave Ramsey slams whole life
A caller to Dave Ramsey's radio show asks for advice about whether or not to cancel her whole life insurance policy. Her reservation in doing so was her insurance agent's claim of a 7.5% tax free interest earnings on the money in the policy. Dave explains why the agent is wrong and what the Ramsey family would do.
I think the thing that everyone is forgetting here is, and is the reason there are so many different products, Is that there are so many different people out there. Just as everyone has a diferent threshhold for pain they also have different threshholds for risk. Just as there are some people who do not like the idea buying any whole life insurance and buying all term and investing the rest. These may be very optimistic people who expect to get a return on their investment( which alot of people do). The thing about it though is there is some inherant risk in this as it is possible to lose alot if not all money in the investments. Now granted Whole life or life insurance in general is not for you. It is not any type of retirement tool. It is for those who you leave behind. People definetly need a full retirement plan that is for them and does not take your life policies into account. The thing about it is there are some people out there who would buy term and bury the difference in a cofee can in the back yard as opposed to taking the chance in investing it. By buying a whole life plan ( when used correctly for inheritance, final expenses etc..) has some advantages such as tax, probate in alot of states. It is most likely not goin to return as much as if you would have bought walmart stock with the difference in the 70's but at the same time it is not as dangerous as if you took the difference and bought Enron with it in the early 2000's In whole life you let the Life insurance company bear the risk of taking your money and investing it. Are you going to return the same amount? No. Do you have the same risk? No. It all depends on how much risk you can live with. Does that mean it is smart to cover all your risk with whole life. Not from my opinion. I think that the people that are that paranoid are probably walking around in football helmets with pillows duct taped around them cause they are scared. There are people out there who need that kind of security. There are other people out there who I would guess are like Dave Ramsey and Suze Orman who are gamblers and it would make them sick to own any whole life and know for a fact that they have passed on a chance to spend the difference between whole and term on the chance to get some shares of microsoft or walmart. I however fall in the middle. Sure I have some term and some whole. I have purchased a whole life to cover my income for my wife and term to cover debt(student loans, Auto, etc..) It all depends on you the customer and what you can live with and what your risk threshhold is. Maybe the Guy with the mortgage protection chose not to be underwritten due to fear of doctors or finding out that he was sick. I can tell you that there are ALOT of people out there who live their life that way and most are men who are also usually the primary breadwinner in a family. At the end of the Day the best life insurance policy is the one that is in force when you need it.
This guy CONSTANTLY slams the integrity of insurance agents, and that is not a very christian thing to do Dave. For your information, it is possible for someone to earn 7.5% interest free growth within a life insurance policy once the cost of insurance is covered with the premium. Missed Fortune 101 is a great book for you to read and understand what I am talking about. And another thing. Term insurance is not the end all be all of insurance. Sure it is a cheap insurance policy, but then it terms out. I know you teach self insuring at a certain age, but realistically, with your financial plan, you leave little room for the major life event that can SEVERELY alter a person's financial standing. Having a term insurance policy has its place, but a return of premium rider should ABSOLUTELY be attached to it. I FIRMLY believe that EVERYONE should have some sort of permanent policy in place. I am a proud insurance agent, and I represent mortgage protection, which you called a "complete rip off" in your financial peace university. I would love you to tell that to the widow that just got $150k to pay off her house because her husband opted to do mortgage protection instead of regular term insurance like you teach. Mortgage protection is a NON MEDICAL term policy. He did not have to give his blood 2 years ago when he got this policy, and he was approved. Had he gone your route, he would have had to submit to a physical, and possibly gotten denied for height and weight, or for the CANCER in his body that was festering. I am not crooked, as you referred to insurance agents in Financial Peace University. Is the agent that sold you your term policies crooked? Not all of us are. There are good people and bad people in EVERY industry. You should stop teaching risk investing too. Equity Index is safe and wonderful. Missed Fortune 101 DAVE!!!!
If they had saved and bought the house in cash as Ramsey proposes, there wouldn't be a mortgage to protect. It's not like the proceeds from a term policy couldn't be used to pay off the house if that's what the beneficiary wanted to do.
By getting medically qualified for a term policy, the insurer can also give lower rates because they know what exactly they're getting into for coverage instead of having to assume everyone might have cancer (and therefore charge a higher rate). Telling people to skip underwriting isn't necessarily the best advice. If they had discovered the cancer during underwriting in your story, maybe that would have been early enough to save his life so the policy wouldn't have even kicked in.
Also note if you invested the money that it would cost to add a return of premium rider to the policy on your own, you'll be able to actually grow interest or dividends on it rather than the insurance company earning the interest. You also don't get the premiums back in addition to the face value if you were to die. You always get the face value. So paying the return of premium extra doesn't even let you earn interest to keep track even with inflation on the money.
You left out all the fees that will subtract from the 7.5% "interest" in the policy, too.
You so called financial experts also never talk about the tax ramifications on every single qualified investment you all tell people to put their money in. Some of them are great but mainly for the wealthy and savvy. Life Insurance is at least safe and they can access the money tax-free. So in the long run I truly believe you will have more borrowing power from the policy which is your money and you have a death benfit the whole time you are increasing the wealth in the policy. TERM INSURANCE is the MOST EXPENSIVE FORM OF INSURANCE ! THE CLAIM RATE ON THOSE POLICIES ARE LESS THAN 1%....THAT MEANS MOST PEOPLE NEVER EVEN USE THE POLICY AND MOST PEOPLE CHANGE THEIR TERM POLICIES WITHIN THE FIRST THREE YRS..78% AS A MATTER OF FACT. SO WHY NOT PUT THE SAME DOLLARS PLUS A LITTLE AND BUILD SOMETHING AND HAVE PROTECTION. IM NOT SAYING PUT ALL EGGS INTO ONE BASKET BUT AT LEAST THIS IS A GOOD START FOR PEOPLE TO GET PERMANET PROTECTION AT AN EARLY AGE VERSUS WATING OR WATING MONEY ON TERM INSURANCE THAT YOU WILL NEVER USE.
So if you're likely to change the policy in 3 years, why would you put money in a whole life policy that won't even start accruing a balance in that time since the first couple of years are spent re-paying the commission the insurance agent got rather than accumulating any significant balance?