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. Here’s a clip from her show:
In the clip, a woman asks 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 advisor signed them up for. The first thing Orman says? "Find yourself a new financial advisor!"
Orman goes 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.1 On this hate list are three types of permanent life insurance: variable, universal, and whole life insurance.
But Orman doesn’t hate all life insurance – quite the contrary, in fact. Orman believes that 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.
Want to see how much Suze Orman hates whole life insurance? Take a look at this clip:
Did you see her face when Jaime says he bought his wife a whole life insurance policy? That is the face of a woman who is completely incredulous about this young man’s choices – and they’ve been talking for less than a minute!
This clip is even better than the first one because Orman gets to compare the real nuts and bolts of Jaime’s term life policy and his wife’s whole life insurance policy. For starters, his wife’s policy costs them ten times more than his – for the same benefit amount! It ends up being a difference of $10,000 or so every year. Jaime and his wife could put that money into an investment vehicle and instead of wasting it, they would have a fat paycheck waiting for them when they retire.
Technically, permanent life insurance is an investment vehicle too – 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.
1. This is where critics say Orman is too simplistic – sometimes, like if 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. ↩