If there’s only one piece of advice you take away from this blog, readers, let it be this:
Don’t ever, ever ask Dave Ramsey if whole life insurance is worth it.
Why? This is why:
"Spoken like a great life insurance agent," he says in response to term life insurance being a bad product because it "runs out," not bothering to hide his sarcasm. "How long you been selling life insurance?"
Ramsey then holds his hands in front of himself like a Bond villain and details a hypothetical, life-insurance-owning scenario that sounds as much like a cautionary tale as it does a rather insightful piece of financial advice. The story ends well because, of course, the hypothetical man followed Ramsey’s advice.
It’s intimidating. But it’s not wrong. And it’s consistent with Ramsey’s take on term life insurance versus whole life insurance.
It’s also consistent with the opinions of other popular financial advisors. Suze Orman thinks some life insurance – including whole life insurance – do nothing for you and everything for the salesperson, which is the same accusation made by Ramsey in the above video.
"But that’s just one example," you say. "Maybe Dave Ramsey just didn’t like the fellow writing in and doesn’t really feel that way about whole life insurance!"
Let’s take a quick tour through Dave Ramsey’s thoughts on whole life insurance, such as when he calls cash value life insurance, like whole life insurance, "one of the worst financial products available." Or, when helping people avoid mistakes when purchasing term life insurance, it’s pointed out that Ramsey hates cash value insurance and never recommends it. In Dave Ramsey’s opinion, there’s only one real mistake you can make when buying whole life insurance: buying it in the first place.
Ramsey doesn’t blindly hate whole life insurance, of course. He just doesn’t think the extra cost – he cites term life insurance premiums as costing about 5% as much as whole life insurance premiums – justifies what you get (or, rather, what you don’t get) from a whole life insurance policy. He sees it as more or less a scam – or, as he calls it, "the payday lender of the middle class."
(Note: that video is titled "Heated debate between whole life agent and Dave." That should give you a good idea about how passionately he feels about the topic.)
But Dave Ramsey is on board with term life insurance. It works as income replacement, and as he said in the first video, when you have kids and a house, it can be useful. He just doesn’t believe that you should keep paying for it once you don’t have those expenses anymore. By that point, Ramsey believes that you should be self-insured through products like mutual funds. Why keep paying for life insurance, especially at such a high price, when you can instead get term life insurance for a fraction of the cost, invest the difference, and have several hundred dollars in savings by the time the term is up?
Some might see it as an attempt to sell his own advice and services – follow these great Dave Ramsey tips to be rich in retirement! – but that in and of itself doesn’t explain his burning hatred for whole life insurance. "Everyone’s situation is different" is a common mantra in personal finance, but Ramsey believes that some things are immutable, and no matter anyone’s situation, whole life insurance isn’t a good investment.
And, of course, you shouldn’t be considering your life insurance an investment anyway.