Term life insurance is an important part of any financial safety net. Ask any financial advisor if you need life insurance, and the answer is almost always, "Yes."
Financial personalities like Suze Orman are no different. She’s quick to recommend life insurance to many of her fans. But only a certain type of life insurance: term life insurance, which lasts for a specific amount of time (the term); she despises whole life insurance, which doesn’t expire and stays in effect for as long as you pay for it.
How much does Suze Orman hate whole life insurance? There’s an entire YouTube playlist dedicated to "whole vs term" segments from her various shows.
There are three main reasons why Suze Orman gives out so much advice on term life insurance rather than whole life insurance. Pretty soon, you’ll see why and probably be agreeing with her (and us).
1. Whole life insurance is a waste of money.
We all want to save money. A lot of advice centers around cutting back on spending and creating a budget, which is great, but Suze Orman takes it to the next level. Orman’s advice to save? Replace your whole life insurance policy with a term policy.
In this video, Orman does some quick math to help a caller realize how much money they’re wasting on a whole life insurance policy:
The caller’s husband had a $500,000 whole life insurance policy that cost $350 a month. Orman points out that a 20-year $500,000 term policy could cost as little as $30 a month. If the caller invested the difference, she could probably accumulate $500,000 in actual cash assets over the years – and still be protected.
In this video, the caller was spending over a $1,000 a year on whole life insurance for eight years. A term policy could have gotten him equal protection, plus $21,000 if he invested the difference and received interest. She also points out that the guaranteed minimum growth of a whole life insurance policy is often much lower than the projected growth.
(The caller also has whole life policies out on his children, which Orman calls "blood money." A little hyperbolic? Almost certainly, but she’s not wrong about how they’re unnecessary.)
2. Life insurance doesn’t have to last forever.
Whole life insurance is expensive because it lasts forever (or for at least as long as you pay the premiums). Orman knows that it doesn’t have to, which is why she recommends term life insurance:
In most instances you really only need life insurance for a finite period of time. Maybe until the kids are adults, or until you’ve been able to save up enough assets that your spouse or other dependents would be able to live off the income from those assets.
By the time you’ve reached retirement, you have fewer expenses (your mortgage and student loans are probably paid off) and fewer dependents. Instead of relying on life insurance to help you, Orman expects you to have your own savings in place since saving for retirement is, as she calls it, "a no-brainer" with 401(k)s, IRAs, and more.
Time is the biggest danger to your financial plan: you have to live long enough to fund your retirement, pay off debts, save for college, and so on. Life insurance isn’t designed to cover your life; it’s designed to cover your financial plan. Once your financial plan is "complete", you don’t need the life insurance policy anymore and don’t need to be paying for it.
3. Term life insurance helps combat your family’s financial fears.
Did you know that money is one of the leading causes of stress for 64% of Americans? There’s little you can do to make it go away completely (it even stresses out millionaires!) but life insurance can provide a little peace of mind.
Orman has three key items to help put financial fears at ease. The first is making sure you have all of your proper documentation in place: a will, a revocable living trust, and financial and health care power of attorney. The next is making sure you have appropriate home and auto insurance. Finally, make sure you have term life insurance.
These three pieces of advice are all related and work together to form a financial safety net. Other types of insurance are a crucial part of your holistic insurance picture; when you go through our insurance checkup, we’ll ask you about your other insurance products to see where you have gaps.
Even if you don’t name your child as the beneficiary (spouses are more common), Orman advises that all new parents get term life insurance. You want to talk about financial fears? How about the fact that you have a baby, with all of the day-to-day costs and future expenses that come along with your bundle of joy. (College isn’t going to get any cheaper.) Orman doesn’t play around when it comes to this point: "There is no way you can tell me you love your kids more than anything if you don’t have life insurance."
Of course, everyone’s situation is different, so the amount of coverage you need depends on your financial situation. You should calculate your financial need to find a policy with the term and benefit amount that fits your family and your budget.
Suze Orman thinks that term life insurance is one of the most crucial components of any financial plan.