Dave Ramey and Suze Orman are WRONG

[albertduran]

I am a fan of Dave Ramsey and Suze Orman, but I think they are completely wrong about what they say about whole, universal, and permanent life insurance.

[bjl584]

I'm not sure about Dave Ramsey, but I know that Suze Orman advocates term life insurance.

Why do you disagree with them? What do you think is the best course of action to take with life insurance?

[YLTL_Dan]

Dave Ramsey also advocates term insurance... that's the only thing I'll ever buy.

[maat55]

Most people are better served by term and investing the difference.

[bethasaver]

I always wondered why Suze Orman is so adamant about that, because even though I've read all her books and watch her show every week I can't really explain why term is best. I happen to have a flexible universal life policy my parents got for me as a kid. I'm not sure if I should cash it in and invest it, or buy more term or what.

So, please do explain why they are wrong for those of us who are still Thanks!

[YLTL_Dan]

I always wondered why Suze Orman is so adamant about that, because even though I've read all her books and watch her show every week I can't really explain why term is best. I happen to have a flexible universal life policy my parents got for me as a kid. I'm not sure if I should cash it in and invest it, or buy more term or what.

So, please do explain why they are wrong for those of us who are still Thanks!

I'll take a shot at this... life insurance agents like to sell whole life/universal policies because they make a lot more money off of it. The main "advantage" they push is the "cash value" which you don't get with term policies. It acts as a savings account that you can cash in (with penalties). However, when you die, you don't get the cash value... you only get the policy amount.. so all of that time you paid extra for nothing.

The reason term is better is because it's a lot cheaper and many financial experts say you're better off by investing the money you saved. From what I've seen, it's easily $100/month more for similar levels of term vs whole.

Dave Ramsey would say cash in the whole life/universal policy and buy term insurance. You should get term quotes first though to make sure it works for you.

[rob62521]

Suze Orman loves term because she says it is cheaper than universal or whole life insurance. And, if you are young and healthy, it really is. However, I always wondered about folks who are ill and older...if term life insurance is really the way to go. We have a small policy, whole life, we've had for years. It's basically money for a funeral and burial. We both have pre-existing health conditions and we decided a long time ago, we will pay the little extra, know we have it, and if something happens to one of us, the other will not have to worry about the funeral expenses. We also have purchased our burial plot and our stone.

[disneysteve]

Except for extremely rare circumstances, term is always the better option. Regardless of your health condition, term is cheaper than whole life.

The cash value that the salespeople make such a big deal about does NOT belong to you. It belongs to the insurance company. When you die, they keep that money. If you borrow from the cash value while you are alive, the amount of that loan gets deducted from the death benefit. So you pay extra every month to have that cash value build up but you're basically throwing that money away. You can't ever get it back.

Instead, if you buy term insurance, you pay a far lower monthly premium. Then you can take the difference and put it in a savings or investment account. When you die, your heir gets both the insurance money AND the savings. Or if you need money for something while you're alive, you can withdraw it from the savings and when you die, your heir still gets the full death benefit.

Honestly, I'm not sure why anyone would get a whole life policy.

As I said, there are some rare circumstances where it might make sense but that is mostly limited to very high net worth individuals or are able to use insurance as part of their estate planning. For the rest of us, it just makes absolutely no sense.

[dczech09]

And of course I gotta step in. This is my favorite topic after all!

With a term life policy, the insurance company is only covering you for a finite period of time. With a whole life policy (or any other permanent policy), the insurance company is covering you until you die.

So unless you achieve immortality, the insurance company knows they will eventually pay a claim on you. So, in order to cover the risk, the insurance company HAS to charge more for the permanent life policies.

The cash value exists because of Federal regulation. The regulation mandates that a cash value be maintained on all permanent life products in the event that the policy owner decides to terminate early. At termination, the policy owner will get the cash value (or equity) of the policy.

Agents and salespeople like to sell cash value as an investment or retirement plan, which is pretty much illegal. But they do it anyway because thats what gets people to buy. By selling these as "hybrids" between insurance and investment, they can make more sales. The insurance companies give more commissions on these policies because they generate more revenue for them.

With the size of the premiums the way they are, the carrier would have to issue A LOT more term life polcies in order to match the revenues generated from one whole life policy.

The cash value is the property of the carrier, and is used by the carrier to leverage their risk. Example: John Smith dies with a $500,000 whole life policy with $100,000 in cash value. The insurance company forks over $400,000 from their own pocket, and the other $100,000 is from the cash value. So basically the larger the cash value, the better off the insurance company is. The larger the cash value, the less risk the carrier is taking on.

The longer a permanent life policy is held, the more risk the insured takes, and the less risk the carrier takes. The same is true for term policies, but to much lesser degree.

Regardless of if you buy when younger or older, sicker or healthier, permanent policies will ALWAYS be more expensive. This is just common sense. The insurance company takes on more risk when covering people permanently, so the premiums are obviously higher.

albertduran, why do you say that DR and SO are wrong? Can you elaborate? Or are you a life insurance salesperson just looking for an outlet?

Rule #1: If you say someone is wrong, you have to explain why. :-)