Updated on March 9, 2018: We love Suze Orman here, and not just because she used to be roommates with John Belushi. What we really, really love about Suze Orman is that she gives on-the-nose, practical advice that’s very useful for the majority of Americans. She’s been criticized in the past for being too simplistic, but sometimes, you have to focus on the basics in order to inspire change.
One area where Orman’s advice has always been on point is whole life insurance, namely: Don’t buy whole life insurance.
On in episode of her show, a woman asked Orman if she and her husband should cancel the variable life insurance (a form of permanent life insurance, same as whole life) that their financial adviser signed them up for.
The first thing Orman said? "Find yourself a new financial adviser!"
The case against whole life insurance
Orman went on to say that she has a "hate list" of investment products that she absolutely abhors. Why? In Orman’s opinion, they do nothing for you and everything for the salesperson
On this hate list are three types of permanent life insurance: variable, universal and whole life insurance.
Orman doesn’t hate all life insurance – quite the contrary, in fact. She believes the only type of life insurance you should bother with is term life insurance.
Orman strikes right at the heart of the issue: Life insurance is not meant to be an investment product. Insurance is a back-up plan to protect your family while you’re building up your financial assets. Term life insurance is cheap – Orman says $50 per month, but if you’re young, you can get it for even cheaper – and only lasts while you need it. You can quickly compare life insurance quotes across companies here.
When to consider whole life insurance
People often think of permanent life insurance, which carries a cash value component, as an investment vehicle – but a lot of that you put it into that is supposed to be for the "investment" side of it is spent on fees. In the long run, it’s cheaper to buy term life and put the money you save into a tax deferred investment. You won’t pay as many fees, and you have more choice about where your money is going and how much risk you want to take on.
Suze Orman knew this, and that’s the advice she has consistently given in all of her time as a financial expert.
However, in this case, it's fair for critics to say Orman is sometimes too simplistic. Simply because there are a few instances where whole life insurance is appropriate. Say you have already maxed out your tax-deferred options or are putting together a more complicated end-of-life strategy, permanent life insurance can be a good product.
However, for the vast majority of Americans (and Orman’s audience), permanent life insurance is not a good idea.
You learn more about term vs. whole life insurance — and which is right for you — here.