why does dave ramsey hate whole life insurance
NOTE: THIS IS NOT FINANCIAL ADVICE. I AM ONLY OFFERING OPINIONS. ONE SHOULD CONSULT THEIR FINANCIAL PROFESSIONAL BEFORE TAKING ANY ACTIONS. As someone who sells WL in the course of financial advising, I surely think it has it s place. If you are looking for coverage alone, yes, term might be the way to go. But what happens when you are 75 years old, you are a multimillionaire because you followed Dave Ramsey to the tee and you are now uninsurable and uninsured. How are you going to pay your estate taxes? Out of your hard earned savings and property. What if you have nothing but Ranches worth 10 million? your loved ones will have to sell that land to pay that transfer tax. One thing a lot of people don t consider is an emergency fund. Dave Ramsay says to have one that is 6x your monthly income. This is also advice that I give. so let s say that you make 100k a year. You need to have something close to 50k sitting in CASH in a back with today s rates making nothing to. 5%
Now, lets assume that you ve saved up 50k in your bank and you want to make it work harder. You can t put it in any kind of market based investment because as we saw in 2008, when shit hits the fan, everything is down, even bonds. So for someone like that, I might suggest a 10 year WL for 5k a year. Over the course of the next 10 years, they move that emergency fund into a life policy. Now, they have better returns than a bank, a death benefit not previously had, tax advantages, and most importantly, a very nice conservative section of their portfolio. Like bonds on steroids. Now the company I typically use can get healthy people in their 40 s an IRR of 5. 5% pre-taxed (comparable to a 7% taxable investment) by the time they are 65. Now you go find any 65 year old and ask them if they would like to put their money in an account that s earning 5. 5% on CASH that DOES NOT fluctuate with the market.
Or ask someone in 2008 if they would have liked to have cash in a WL policy that they could have taken out and thrown in the market when everything was down. So yes, it surely has it s place. For people who are bad at saving? it s an awesome forced savings plan. If you get a waver of premium rider, it becomes a self filling bank account if you become disabled. Does your current emergency fund do that? It s not always about returns. One thing Dave Ramsey forgets to remind investors is that the average investor without a financial adviser made an avg of about 3% over the past 10 years (because they think they know what they are doing because some talking head on TV told them). Those individuals would have been better served with a WL policy in a Mutual company. (only go with WL in a Mutually owned company imo) If I m not mistaken, Dave Ramsay also has a Whole life policy. Before I go, here is a true story that happened to my business partner: Had a client who was taking Dave s advice. Cashed in his UL to pay off his Jeep. Got out of debt and applied for a term policy. He gained health issues between the time when he bought the UL from when he applied for the term. Now the rated term policy without cash value he got is now the same price of his UL. Financial advice is NOT a one size fits all and the advice I would give a millionaire is not the same that I would give someone making 50k a year. I just heard you on the radio re: your passionate conviction to dissuade the purchase of whole life insurance. I thought it was interesting that while you condemned a salesperson for never engaging in critical analysis upon the recommendation of whole life, you also never engaged in even an abridged analysis to support your position, other to say anyone is an idiot and stupid to ever support its sale.
You did say that you had the right (inference) to say this because you had been in the financial business for over 20 years. To me, generalities like this are actually the essence of financial planning stupidity you seem to hate so much. Out of hand, you indicated that in every life scenario it is wrong to choose whole life. Really?! How shallow and short sided can one s advice be as what you render here. Even if people believed you, they wouldn t know why, except to say they YOU have crunched the numbers. Having been in finance ALSO over 20 years, I can tell you with authority that your short sided analysis is not steeped in fact whatsoever, Dave. You also suggested that if anyone were ever to recommend whole life that they would very probably be stupid in other areas of financial planning that they would be fired, if it was up to you. WOW! So, if I prove you wrong, that there are definitely appropriate times and situations to recommend whole life, would you then admit that all of your other advice is equally as stupid? I ask you this because I can prove it, have proven it in real life, previously, and have had scores of people benefit greatly over times in which either outside investing of the difference was inappropriate or not favorable for other reasons. There are LOTS of reasons for people to purchase whole life or a variety of other cash value participating life insurance policies. During your rant today, you spoke to pension maximization when you said it is better for a healthy defined benefit recipient to not take the diminished value of survivorship benefits under the pension plan design and to use insurance, instead. There are plenty of situations where whole is by far preferable to that of buying term and investing the difference.
In fact, this concept that seems to be your default position with regard to life insurance. bu ying term and investing the difference of what might have collectively equaled a whole life insurance premium has been proven time and again to be far less effective a means of capital appreciation than if one just purchased the whole life to begin with. forgive me is I seem crass about this Dave, but I have to wonder if your advice on this is so flawed and one dimensional as you indicated today on national radio, how good is your other advice? I am bringing this to you attention in this confrontational sort of way, because you do seem to be passionate about helping people, or at least that what I have noticed the few times I have heard you. If you are, I will tell you that your advice rendered today was a narrow-minded disservice to many you claim you want to help. Also, I have to wonder. as I didn t do any research, if you are in any way financially connected to the term insurance service your advertised right on the air! This is not an accusation, but it does make one wonder what your motive is with such shallow thinking that every single person MUST use term life if they ever need life insurance. It is an abominable claim. Let me know if you ever want to KNOW why. I am in a hurry and didn;t neaten up this note. so forgive any grammatical errors in advance. I have to get back to work. If you re getting back to work involves the critical thinking your listeners deserve, I would advise you become more aware of the viability of whole life in certain situations. I think that there are plenty of times term is the right choice, but, it s all about choice! Good luck and God bless!
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