Well, this one tends to fuel a lot of hoopla these days. Financial advisor gurus, Dave Ramsey and Suze Orman say you should only buy guaranteed level term life insurance.
They have purported that permanent insurance policies based on whole life insurance are a bad investment. Buy term life insurance they say. Whole life insurance has even been called a ripoff!!
Are they right?
Dave Ramsey & Suze Orman Life Insurance – The One Trick Pony, Term Life Coverage?
Take a look at the example video posted below. The Suze Orman life insurance recommendation seems a little over confident with the little information gathered from the policy owner. This gentleman and wife received questionable advice from 2 people. First, the writing agent and second, Suze Orman.
Are you a confident saver and investor? To follow their advice, you must be confident in who you are here. If you will not consistently invest the money, their strategy will not work, will it?
So in the video below we have…
A single 30 year term policy for a 39 year old that is a stay at home father? How long has he had that policy? What are the goals? Whole life insurance on the wife? Why was that selected in the first place?
Those questions must be asked to assess the situation. The odds are, both of these people probably were sold the wrong products, but Suze did not really smoke that out. What were they trying to achieve with buying a whole life policy on her?
Ms. Orman just jumped all over the cost of whole life insurance which may not have been appropriate, but the correct questions were not asked to assess what this couple wanted to achieve.
This is why you talk to an life insurance expert, not a guru. Planning with life insurance is not always cut and dry. A blending strategy may necessary depending on the family structure and goals, who knows.
Talk it out with an independent life insurance professional, not a financial entertainer folks.
The big problem here is the assumption that everyone subscribes to the same ideologies or will invest the money in the first place. It also assumes everyone at this stage in life has an identical family situation.
Can we really take for granted that the market won’t crash like it did in the mid 2000’s?
Not having a crystal ball, I wouldn’t assume anything.
So should I just buy whole or term life insurance than?
Honestly, there is not one clear answer to that question, period.
When you hear the rants of various financial gurus vs the “hardcore” whole life insurance, you’d think most people would come to the reasoning that the answer lies somewhere in the middle.
So for my “rant…”
In short… I will say, it depends.
Some people are just not comfortable picking and/or monitoring investments and as such are risk adverse. If you are risk adverse should you invest the money anyway? After all, the gurus say this is what everyone should be doing, right?
The reality is, plenty of people will continue to be uncomfortable with investments they don’t understand. It is not reasonable to expect them to start investing. These opinions are based on their personal knowledge and fear of the market and its inherent risks.
Whole Life Insurance A Bad Investment?
Let’s clear this up right away.
Whole Life insurance is not a true investment, period.
It is a permanent life insurance policy that provides a written guarantee of financial protection for the rest of your life!!
It will pay out inevitably as long as the policy is paid up properly. Term life insurance does not offer that benefit. Permanent, whole life has the same premium from the age you take it out to the day it is either “paid up” or you pass away. Keep it for 50 years and you will see why it wasn’t so expensive when you try to buy term life insurance at age 70. It is priced to be permanent, not temporary.
In the earlier years of coverage, it is very expensive for whole life coverage compared to term life insurance. Try taking a term life insurance policy out 20-30 more years in the future for the same amount and you will see why the whole life policy was priced as such such. The same amount of coverage will be a lot more money, period.
Remember, with whole life, the premium will never go up and the death benefit will never go down as long as you keep the policy paid up.
Yes, whole life insurance is a lot more expensive. It offers a heck of a lot more and is for a completely different consumer. Someone who needs absolute guaranteed coverage till death and values the access to cash value that builds inside the policy.
If you do not value both those features, you are better with term life insurance.
Whole Life insurance is designed for wealth transfer and end of life expenses for the most part. It is the original estate planning tool of choice in a lot of cases where guaranteed universal life insurance does not meet the the policy owner goals. This is a strategy is used quite often by the wealthy.
So why isn’t whole life insurance an investment?
Simple.
What do investments imply? That’s right… risk of loss. Whole life insurance, none. That is why they call it insurance.
Yes, there is of course VUL (variable universal life), but that is a different animal all together and infrequently sold in comparison.
Most people just need term insurance or permanent life coverage offered by a guaranteed universal life insurance (GUL) policy. No cash value inherent (some GUL policies have small amounts) in these policies, just pure insurance protection.
Whole life insurance is very good for small final expense, burial policies, money leveraging strategies for example, but term life and GUL handle everything else with some minor exceptions.
I don’t have a problem with anyone expressing their opinions about smart money (I just did it myself), just be sure that you have written a lot of life insurance coverage, worked for life insurance carriers or have something other than hearsay or horror stories before before claiming to be an expert on life insurance. Listen to people and get to the root of what they really want and can afford. Don’t confuse the public with life insurance drama just to get attention.
I can tell you about plenty of people who had their term life insurance expire at the wrong time and plenty who lost their shirt in the stock market in 2008.
Dave Ramsey Whole Life vs Term Insurance
Dave comes at whole life insurance with an apparent attitude. He has been know to go on a rant about life insurance products that are not term insurance.
Why?
He believes that consumers can easily build up financial resources by investing the difference saved in buying term life insurance vs whole life insurance. The savings is placed in the stock market assuming a a average of 7-8% a year in returns.
Problem is…there is NO guarantee at all. What happens if 2008 strikes again? Many people lost 50% of their mutual fund growth as they naturally got scared and pulled it all out. We’re they stupid? No, just human and feared losing it all.
How many people lost money on their whole life insurance policy from 2007-2009…zero!!
Did the cash value increase, yup. The contract has minimum guarantees written into it.
Is it an investment, no!! Cash value accumulation in a permanent life insurance policy is a living benefit feature of whole life insurance. The policyholder is paying for this benefit in his/her insurance premiums.
Many people have died with their whole life policy in force since the “housing crisis” and it has paid out way beyond the amount of premium put into their policies. It was completely unaffected by the market.
Their beneficiary received tax free money too boot!!
The Take Home…
Dave Ramsey’s reasoning makes a lot of sense.
But…
Whole Life insurance is a financial guarantee not an investment. It is a tool that protects those you care about the most. The “investment” argument is getting old and ridiculous. Cash value accumulation is a benefit of certain types of life insurance and one reason why those policies are more expensive. A permanent life insurance policy does not get off the hook easily. There is a written fact in it that some day it must pay out a large amount of money provided the policy owner pays their premiums. Term life insurance is temporary. It is likely to terminate prior to paying out any benefits.
This is what Dave Ramsey and Suze Orman are not talking about at all.
Remember folks, Dave and Suze are sponsored financial entertainers. While knowledgeable they are not licensed insurance professionals nor have any designations in life insurance.
So why make such much drama? Dave Ramsey and Suze Orman are just aggressively marketing opinions. Dave sends his term life business to a big box term life insurance agency called Zander Insurance. Guess who is financially supporting Mr. Ramsey? That’s right the organizations he mentions on his show. Suze Orman sends her business to Select Quote, another life insurance agency. Folks, these are just big call centers working high volume sales.
As an independent agency, we certainly recommend it to anyone who whose needs are for a defined period of time, whether that is 5 years or 30 years. Term life is temporary insurance. Whole life insurance covers people for their full life. The insurance company will be paying money out to a beneficiary as long as the policy premiums are paid appropriately.
The Real Intent of Whole Life Insurance and Other Permanent Life Insurance
The difference between investments and life insurance…
Whole Life and Guaranteed Universal life insurance are guaranteed financial vehicles. There is no risk of loss as long as you pay the appropriate premiums. Benefits never go down and any cash value accumulates (whole life policy)…regardless of what goes on in world. With whole life insurance, there are guaranteed rates of return built in the policy. These policies are not meant to compete with mutual funds or the like. It is about security and peace of mind.
With permanent or whole life insurance, you are paying for a lifetime of guaranteed protection. With term life insurance, it is temporary.
Though I do personally invest, I do not advocate it for everyone. It takes a certain level of nerve to withstand tough times…especially are when the market is really down. Investing should be kept separate from life insurance from our perspective here at Special Risk Life.
When I first became a licensed agent over 20 years ago, Michigan law prohibited any licensed life insurance agent from even claiming life insurance was an investment.
Wonder why?
The State of Michigan does not consider that to be a fair statement and a misrepresentation to the consumer.
Whole life insurance is not exposing you to inherent risk as typical investments do.
Cash value of a whole life insurance policy is a living benefit. Again, there are guarantees built into it. Some people may choose to borrow funds from their policy, use it elsewhere and repay the policy loan later. If they do not repay them, this becomes a charge back to the policy benefits upon death.
Comparing permanent life insurance to a mutual fund or a stock just seems kind of ridiculous.
Life insurance, whether whole or term, is just part of a financial protection strategy.
Some people deploy and use the cash value inside their whole life insurance to essentially “leverage” the living benefit while many others do not.
As an independent life insurance agent and not a Certified Financial Planner (CFP), it is simply not my place to talk investments.
Life Insurance is financial protection for the living folks. The level of protection needed costs a certain amount of premium. It is insuring the inherent financial value of the insured person’s life to a beneficiary(s). It isn’t really an investment.
The term “investment” implies varying levels of financial risk in most cases. Traditional life insurance has limited “risk” if the policy is properly paid up, whether we are talking about Whole Life or Term Life Insurance.
Incidentally…Having both permanent coverage plus cash accumulation… of course it is going to cost a lot more. After all, Whole Life Insurance will be paying out a large sum of money to your beneficiary assuming the policies are kept in force. Term Life insurance may expire long before the insureds death. Hence, a much lower risk of a claim being filed with the insurer and lower costs to the paying party.
Even 10 times as much!!
Term Life insurance stacks the odds in the insurance companies favor and why it is much cheaper. It’s simply temporary coverage for the insured individual and has no cash value accumulation. The odds of payout are greatly reduced, especially if you or another insured are in ideal health.
Term Life insurance is an excellent option for a defined time period. A time period you financially no longer need protection.
It wasn’t that long ago the most investments bottomed out. While it has certainly turned around a lot of people lost big money.
How many years did that market recovery take?
The general public who had invested their savings money came into the reality that investing for years does not guarantee anything. You could be up over many years and down all of it in short order if market conditions go south.
Yes, our market did recover, but investor recoup did not occur quickly did it? The recovery required you either held your course thru it all or bought new investments at the bottom to offset all the losses.
Pretty easy to put a million in your pocket after 30 years of investing, right?
Yea, no problem!!
Sorry, I am being sarcastic here. All we have to do is look at the average person’s bank account and see that strategy fails a lot of people for various people for one reason or another.
Again, investments and life insurance should not be commingled. Investments do not inherently protect your loved ones. The intent is to grow your money but assumes you understand there is a degree of risk in doing that. People buy life insurance to transfer risk, not assume risk.
Here is the rest of the reality when it comes to Term Life versus Whole Life… With age, risk to the insurer goes up. Someone age 25 taking a policy out for 20 years is pretty likely to survive right? We all know exceptions to that rule, don’t we?
Anyway, as we get into our midlife and senior years, risk to the life insurance company goes up exponentially.
What Are the Alternatives To Whole Life or Term Life Insurance?
At Special Risk Life, we do not advocate Whole Life Insurance or Universal Life Insurance as any kind of investment.
Keep your investing over on one side of your portfolio and life insurance on the other.
Life insurance (term or permanent life insurance) is not a one size fits all. None of these products are the best choice for everyone, period. Some policies will have additional benefits and will cost more…maybe a lot more depending on your needs and wants.
Permanent Insurance (Whole Life Insurance or Universal Life Insurance) is typically used for certain applications: First and foremost are those who are just risk adverse and just want permanent, life long protection for their beneficiary(s), those individuals “leveraging” a large sum of money, estate planning, funding a life insurance trust, charitable giving, pension maximization, final expenses, burial or funeral expense insurance.
Don’t get sucked into a one product fits all mentality. If your a 25 year old with a new mortgage and just starting a family and striving to get financial protection in place, consider a blending strategy of 30 years of level term life insurance on each of you. It will save you a lot of money in premiums.
The strategy of blending policies is a bit beyond the scope of is article, sorry!! Protect your family by getting something very, very affordable. The blending strategy is cheaper than buying a large 30 year term policy.
As your wealth increases and kids move on or the debt you had is paid off, you may not have the need for the extra life insurance any longer. That is where the blending strategy works well to save you money. Just depends on your specific situation.
I do believe that whole life insurance seems to be getting less purposeful than it was years ago. Though for senior citizens planning for burial/final expenses, it is the product of choice under $50,000 or so. Never, never, never use term life insurance from any insurance company for final expense protection for your loved ones.
There are newer universal life insurance products that are more cost effective and provide permanent coverage at a considerably lower rates than Whole Life Insurance. Mentioned earlier, Guaranteed Universal Life is very affordable and useful in traditional cases and provides “term like” rates. It tends to be a go to product for estate preservation cases, charitable giving, pension maximization planning etc. now days. Like level term life insurance, these policies are harder to qualify for.
If permanent coverage and/or cash value is important to you it takes term life insurance off the table completely. Knowing your goals helps zero in on the right products and company(s) for you.
The takeaway here –
Hopefully you have a better understanding of why certain permanent products do cost a lot more for the same amount of coverage. Maybe those who do not want or need permanent coverage consider it a ripoff?
I agree that Suze Orman and Dave Ramsey life insurance recommendations are reasonable for those in their 20-40’s. After that, I would say their strategy is very risky and lacks depth of consideration. Now, they might be able to give a good life insurance recommendation in terms of a policy amount if term life insurance is the best product to protect your family goals. As I update this article, we are seeing record high inflation in 2023 and the stock market has slipped 25%. Do you know when the stock market is going to run up again? For those who have retired, their retirement got hammered. Could it be a decade before the market gets back on solid ground? No one knows. Lots of uncertainty.
Again, it is about your income, needs, goals and budget, first and foremost. How much risk do you want in your life?
As stated previously, while I do believe there are newer permanent products that are starting to make Whole Life seem outdated, there are still benefits in a good participating whole life policy that are worthwhile to the right person.
The key to value in a permanent policy…you must die while the policy is in force. You do not take out permanent coverage and cancel it ten years later. Bad move. You are paying to ensure the protection is there when it is needed. Why take out a permanent policy if you don’t need coverage for your entire life?
People who cancel their permanent life insurance policies have lost out on the guaranteed death benefits the policy would be paying the beneficiary. Never take out a policy you cannot afford to keep, either term or permanent. It does not do any good if you cancel it and then pass away.
Having the right coverage for your situation comes down to finding a seasoned, independent insurance agent/broker that makes recommendations based on your specific needs, not someone pushing their own agenda. Financial entertainers may not share your ideology, values or risk tolerances. Remember that.
It takes a good needs analysis on what you are trying to achieve before application time. Maybe you’re better off with a simple 20 year term policy, or maybe a term policy combined with a small whole life policy etc. No Lapse, Guaranteed Universal Life Policies may provide an excellent permanent alternative to the more traditional whole life insurance. They do not have any cash value, but have much lower rates.
Don’t get sucked into the one size fits all, term life mentality where you can invest your ways into guarantees. While it has some common sense behind it, the assumptions that everyone has the same financial discipline and risk tolerance is missing.
Like anyone else, Dave Ramsey is trying to earn a living by providing advice. He does this by trying to amass people who think like he does. His “tribe” so to speak. He is compensated for referring “term life insurance” out to a big box agency, Zander Insurance. Why doesn’t he recommend anyone else? Are they really offering the best term life insurance companies to their clients or simply meeting production (sales) requirements of certain insurers?
Dave Ramsey and Suze Orman are well marketed financial entertainers. They thrive on drama to drive their followers to buy what they are offering. They don’t have any special training in life insurance, just opinions.
Dave Ramsey & Suze Orman Term Life Insurance Ideology
Term life insurance versus whole life insurance coverage, well that is apples versus oranges, period. There is a reason life insurance companies and reputable independent agents market all these types of coverage. People need and want professionals to deliver personal, financial peace of mind specific to them. You do not need to have approval of those who do not know your personal situation and values. Incorporating smart money and having the right life insurance plan is the goal.
The whole life insurance “ripoff” is just drama to get more people to buy what he is selling. Folks both of these financial entertainers are in business and being compensated very well for endorsing. Both have helped plenty of people with their financial problems Both Dave Ramsey and Suze Orman have opinions just like the rest of the world. Enough said there.
Without a crystal ball, no one can guarantee any returns to you. What happens if your portfolio takes a turn for the worst? Will you be able to sleep at night with the unknown? While I have respect for their thoughts and values, as it makes sense, they do not seem to understand that consumers situations are not black and white. Furthermore, many people don’t subscribe to investing… beyond a bank CD.
Remember, these gurus don’t know your risk tolerance or comfort with “investing.” There is certainly more than one way to skin a cat, right?
The Take Home on Whole Life and Term Life Insurance
The best way to qualify Term life insurance is to remember that it expires so it is used for a defined period of time only. Most term policies expire by age 80.
Always remember, life insurance is based on your age and health when you take it out. Purchasing life insurance in less than good health becomes more expensive. Trying to buy life insurance at age 80 can be difficult and/or prohibitively expensive for some.
With Whole Life Insurance, it is really about wealth transfer and absolute guarantees. It isn’t really for investing or building up savings. I’m not suggesting that a good participating policy can’t build some solid cash over time, but it is not the key point of the coverage, just a benefit. It does not expire and will pay out when absolute guarantees for wealth transfer are required. That is a power of permanent life insurance that term life insurance cannot offer. That is the life insurance consumer who buys a whole life policy vs a term life insurance policy. They are looking for protection for the inevitable versus the “what-ifs” in life.
Dave Ramsey and Suze Orman with their term life insurance arguments, have sound thoughts, but they are operating from an assumption that people are buying life insurance for all for the same reasons. They assume that years of investing can’t crash down and take years to recover. Also being assumed is that everyone has the comfort level with investing and/or the resources to even do so. That is a major flaw in both their ideologies.
Only life insurance can guarantee wealth transfer when it is needed and is done typically, tax free. That is why many wealthy people use permanent life insurance to see that their estate values are preserved. It is also why many seniors protect there loved ones from even the expense of a burial costs.
Concluding the Dave Ramsey and Suze Orman Life Insurance Rant
All 50 states have a department of insurance that approves and regulates life insurance. It is illegal for any insurance company to market products not approved by the state. If whole life insurance was “terrible” the state insurance commissioners would not allow the sale of it.
Whole life for many, is pricey for a large policy.
High dollar, whole life policies are for people and businesses with deep pockets, not the average middle class individual.
Please remember both Dave Ramsey and Suze Orman life insurance recommendations are based on a investment ideology you must agree with. Neither of them are life insurance experts by any means. Each of them are financially compensated by large, call center life insurance agencies that sell term life insurance in very high volume. Dave Ramsey is supported by Zander Insurance and Suze Orman by Selectquote. If you think those are the only agencies that write a lot of term life insurance than you have been duped by one or both.
Real life experience with clients of all income brackets has shown that different life insurance products are needed to meet the needs of different people.
Young people are usually best served with term life insurance for the “what-ifs” as the odds of many years of life are in their favor. When you hit the middle years, things start to change. Health conditions and other factors start to creep in. Heart attacks and breast cancer take the lives of many people before age 60. Try to tell a 60 year old who needs a $15,000 policy to cover his funeral and burial expenses so his family isn’t burdened when he passes away. He has had a few health issues and is on 4 different meds. Level term life insurance being harder to qualify for will probably be a decline. Permanent life insurance starts to become more appropriate as people age.
Middle aged or senior citizen, you’re at an ever increasing risk to your end of life. For you, qualification requires action before poor health strikes so you can get the lowest rates particularly with guaranteed level term life insurance. The average senior would not qualify for a level term life insurance policy. Even if they could, coverage beyond age 80 is rare.
My advice as a very seasoned broker, don’t listen to people who aren’t working with insurance clients. They don’t know the story, their means or the purpose of the policy
Don’t put too much stock in anyone who says one size fits all. Our extensive experience shows this to be poor advice.
I find myself writing many different types of life insurance. Level Term Life, Indexed Universal Life and 4 different types of Whole Life.
If you are dealing with a representative or guru pushing a type of life insurance coverage you are not interested in, consider finding another independent agent/broker.
There are all kinds of proponents that just sell term life and say invest the rest. It can be good for some people depending upon age and goals. On the other hand, there are representatives that just push whole life insurance. It is often presented as an investment. Remember, these are salespeople who are pushing their ideology onto you as well.
Give them your ear, but what do you think and want?
What fits the bill the best for you? Temporary or permanent life insurance? Do you have a defined time table (term) or are you not sure how long (permanent insurance).
Choosing the right policy is very important… don’t use term life insurance to pay estate taxes or set up a pension maximization plan. That is not in your best interest or that of your family. Keep in mind whom the benefits will be assigned to. Again, this is why it is important to select the appropriate policy and tune out a lot of the “noise.”
In my line of work, we have to help people assess what is best for them. If life insurance is needed, we locate the best life insurance company and product for their specific needs. Our objective is to direct our clients into coverage they can be completely comfortable and confident in. A plan that is affordable, first and foremost. Clients will not keep it or stick to a financial protection strategy otherwise.
Life insurance sometimes requires out of the box thinking and an open mind. Yes, there are some weak products.
I must admit that I do not like guru’s or competitors shooting term life insurance from the hip. Most of my senior clients that are 75+ would be angry people right now with their inappropriate term life policies that these pundits broadcast as the only type of life insurance to buy. Those policies would expired or nearing expiration.
I want to be clear on certain universal life insurance policies. Some are more complex than a simple term or whole life insurance policy because of all the moving parts. Make sure you understand your policy and any limitations it may contain.
Whole life insurance offers lifetime guarantees that does cost considerably more than other types of life insurance. It adds guaranteed cash value accumulation which does influence the higher cost. A living benefit not found in term insurance. While it is more expensive in your younger years when compared to term life, the level lifetime premium is actually lower in your later years because of averaging. Most people don’t know this.
If you are estate planning or preparing for end of life expenses, you must have a better plan then just “term life insurance.” Outliving the coverage is quite common these days. When people are up in their years, remembering to exercise a conversion option doesn’t happen either.
What happens? The policy expires or goes gang busters in cost to keep. Now, there is a big problem!!
That’s right. Dropped right when the coverage is needed the most.
People’s needs change do to unexpected things in life. Sometimes the best laid plans fall apart even when well executed.
A proper life insurance plan can help protect the financial impact on you, your family or your business when death occurs.
If you would like to discuss your situation with us, I will be here to help you sort it out. Many people just do not need permanent coverage, just depends on where you are financially in life and what your personal goals are. With us, honest answers are what you get, not just canned ideology. Give us a call for the fastest service, 269-230-3464. An email is always welcome if you are more comfortable along that route.
Oh, and always feel free to leave comments below.
Michael is a licensed and veteran independent life and health insurance agent who specializes in guiding people with even high risk conditions thru the insurance process. He is passionate about helping individuals and families get their unique financial protection needs met, providing his experienced based advise and delivering affordable and dependable coverage people and families can count on.
