The financial world we live in is just as wild, if not more, than the mountains and woods we walk through. We are told that the fundamentals of our economy are strong, but we can feel that something is wrong. My unique financial background and survival passion make Financial Survivalist and excellent place to learn and share.

Sunday, April 1, 2012

Dave Ramsey Epic Fail: Whole Life VS Term Life Insurance

Dave Ramsey Epic Fail

Anyone that listens or follows Dave Ramsey knows that Whole Life Salesman are the "scum of the earth." Pretty harsh words coming from a self described God fearing man. WL salesman are just as likely to be scum as any Financial Planner or Advisor. In fact, they are no more likely to be scum than a loan officer or real estate agent or RADIO HOST at that matter. WL salesmen simply have a different point of view of investing.

So what do you do when the WL salesmen say Dave is ignorant and Dave says they are scum? Simple. Educate yourself and make your own decisions. The #1 thing I don't like about Dave is that he has a "one size fits all" strategy. In reality every person's financial situation is different, and there is no "one size fits all" answer.

Term Life Insurance

  • inexpensive
  • no cash value
  • limited coverage time frame

Whole Life

  • tax deferred growth
  • tax free withdrawals (if done correctly)
  • lenders count CV (cash value) as an asset
  • IRS does not count CV as an asset
  • CV is protected against law suits and bankruptcy
  • expensive at first
  • death benefit for life
  • CV can be used to pay premiums temporarily or indefinitely
  • additional contributions are required to maximize CV growth
  • CV can be used as collateral for a loan

You might be wondering if I am a WL salesman? I am not. I simply have done my research. Term and WL insurance have their uses. In order for Whole Life to be used correctly it must be designed correctly. I have to admit that most agents don't understand how to properly design a policy. If interested I can provide some references.

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30 comments:

  1. Think you missed a few.

    Term Life Insurance

    inexpensive
    no cash value
    limited coverage time frame
    *affordable way to actually meet your life insurance needs*



    Whole Life

    tax deferred growth
    tax free withdrawals (if done correctly) - *liar, depletes death benefit when you do this*
    lenders count CV (cash value) as an asset
    IRS does not count CV as an asset - *liar, counted against estate for estate taxation*
    CV is protected against law suits and bankruptcy *liar, only partially true, depends on state law*
    expensive at first *liar, expensive all the time*
    death benefit for life *omission, who needs a death benefit at 90?*
    CV can be used to pay premiums temporarily or indefinitely *omission, depends on returns and interest rates and dividends*
    additional contributions are required to maximize CV growth
    CV can be used as collateral for a loan

    Whole life is wrong for 99% of insureds. Cancellation rates are 50-70% before death, so all those magical benefits never materialize for most policyholders. It's a ripoff unless you know you need it. Hint: if you have to ask, you don't need it.

    Show me an illiquid estate greater than the federal estate tax exemption of $10,000,000 per couple and maybe we'll talk whole life.

    ReplyDelete
    Replies
    1. not every one is a scum bag...some people actually love their heirs and want to leave a gift tax free. why pass your tax burden on to them when for pennies on the dollar you can use permanent insurance.

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    2. Dave Ramsey agrees whole life sucks. Cause he's smart and can invest his money and return 12% per year every year, year in year out. He can't tell you specifically how, but you can for sure. Also if you have all your debts paid off you don't need money cause if you run your budget you'll find out that the only other expenses you have are cell phones, internet, cable, food, taxes, gas, clothes, health insurance, health expenses, other insurances, and maybe a few more miscellaneous items. If your stock portfolio for some reason because you aren't as smart as Dave doesn't return 12% in a year and maybe loses money then you can just cut all those expenses out you don't need money. Cause you paid off your debt see. This is sarcasm, Dave is an idiot, real financial planners look at his wealth accumulation advice and laugh. His debt repayment is spot on, but his views on things like stocks, life insurance etc.. are just stupid. He makes up stuff and it sounds good, but it's ridiculous.

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  2. Dear ANONYMOUS,

    Thanks for your comment, but wo dude! Calm down a bit. Why do you feel it necessary to call me a liar? Why can't we have a discussion like adults?

    I don't even feel like your comment deserves a response because all you did was throw out Dave Ramsey talking points. About 50% of what you said is 10% true. Yes state laws vary by state, so make accommodations for those state laws! I'm speaking in a generalized manner anyway.

    Maybe it's true that 50-70% of policies are canceled before death, but most of the WL benefits are LIVING benefits! Also, you seem to ignore that fact that only 3-5% of term policies pay benefits. Mostly because only 3-5% of people die before their policies expire. That's probably a good thing but not the point.

    I'm not against term. I think term is perfect for a lot of situations. However, I am sick of the bad mouthing Dave Ramsey gives WL. He's suppose to be a Cristian for crying out loud! What would Jesus do?

    There are a lot of different types of WL and just as many ways to structure a policy. Most WL policies are NOT properly structured. That's why I promote self education. However, a properly structured WL policy can provide a lot of benefits in the right situation.

    One last question: What is the difference between a WL Salesman that believes in what they do, and a ELP (endorsed local provider) Financial Advisor that sells a strategy based on flawed statistics that may or may not work out? NOTHING!

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  3. NOTE: THIS IS NOT FINANCIAL ADVICE. I AM ONLY OFFERING OPINIONS. ONE SHOULD CONSULT THEIR FINANCIAL PROFESSIONAL BEFORE TAKING ANY ACTIONS.

    As someone who sells WL in the course of financial advising, I surely think it has it's place. If you are looking for coverage alone, yes, term might be the way to go. But what happens when you are 75 years old, you are a multimillionaire because you followed Dave Ramsey to the tee and you are now uninsurable and uninsured. How are you going to pay your estate taxes? Out of your hard earned savings and property. What if you have nothing but Ranches worth 10 million? your loved ones will have to sell that land to pay that transfer tax.

    One thing a lot of people don't consider is an emergency fund. Dave Ramsay says to have one that is 6x your monthly income. This is also advice that I give. so let's say that you make 100k a year. You need to have something close to 50k sitting in CASH in a back with today's rates making nothing to .5%

    Now, lets assume that you've saved up 50k in your bank and you want to make it work harder. You can't put it in any kind of market based investment because as we saw in 2008, when shit hits the fan, everything is down, even bonds.

    So for someone like that, I might suggest a 10 year WL for 5k a year. Over the course of the next 10 years, they move that emergency fund into a life policy. Now, they have better returns than a bank, a death benefit not previously had, tax advantages, and most importantly, a very nice conservative section of their portfolio... Like bonds on steroids.

    Now the company I typically use can get healthy people in their 40's an IRR of 5.5% pre-taxed (comparable to a 7% taxable investment) by the time they are 65. Now you go find any 65 year old and ask them if they would like to put their money in an account that's earning 5.5% on CASH that DOES NOT fluctuate with the market.

    Or ask someone in 2008 if they would have liked to have cash in a WL policy that they could have taken out and thrown in the market when everything was down.

    So yes, it surely has it's place.

    For people who are bad at saving? it's an awesome forced savings plan.

    If you get a waver of premium rider, it becomes a self filling bank account if you become disabled. Does your current emergency fund do that?

    It's not always about returns. One thing Dave Ramsey forgets to remind investors is that the average investor without a financial adviser made an avg of about 3% over the past 10 years (because they think they know what they are doing because some talking head on TV told them). Those individuals would have been better served with a WL policy in a Mutual company. (only go with WL in a Mutually owned company imo)

    If I'm not mistaken, Dave Ramsay also has a Whole life policy.

    Before I go, here is a true story that happened to my business partner: Had a client who was taking Dave's advice. Cashed in his UL to pay off his Jeep. Got out of debt and applied for a term policy. He gained health issues between the time when he bought the UL from when he applied for the term. Now the rated term policy without cash value he got is now the same price of his UL.

    Financial advice is NOT a one size fits all and the advice I would give a millionaire is not the same that I would give someone making 50k a year.

    ReplyDelete
    Replies
    1. About your true story ---- "Before I go, here is a true story that happened to my business partner: Had a client who was taking Dave's advice. Cashed in his UL to pay off his Jeep. Got out of debt and applied for a term policy. He gained health issues between the time when he bought the UL from when he applied for the term. Now the rated term policy without cash value he got is now the same price of his UL".

      You cannot blame that on Dave Ramsey's advice. Dave's advice is if you have UL or WL insurance, FIRST go buy a term insurance policy. Once the term policy is in place, THEN cancel your UL or WL policy. So if your client would've done as Dave said, he would've saw that term was same price and then never switched.

      I will end by saying that I do believe in WL insurance. I believe you should have both term and WL insurance. You need to insure yourself (if you don't have enough passive income to pay all your bills) to your "full human life value". Usually when you're starting out in life, you can only afford mostly term and very little WL Insurance to get to your "full human life value". But you can convert the term into WL along the way as your income increases through life.

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  4. So, which should you choose? According to this article "Term vs. Permanent Life Insurance," term life insurance can be designed to provide protection against upcoming expenses, like putting your children through college. Meanwhile, permanent life insurance can be more useful for covering long-term financial needs, such as estate planning.

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  5. Why is WL even being considered or acknowledged as a possibility??? WL salesman try to sell these policies as an investment, which in my opinion is complete fraud. You borrow against your own money, get taxed on it (if there's any left at the end) and pay hundreds more than you should. It is clear that for insurance needs, it would be wise to purchase inexpensive term insurance. And anyone with half a brain should be able to understand the concept of investing into the global economy (mutual funds) for themselves, rather than paying a fraudulent, misguided idiot to poor their $ into a "cash value" policy. Common sense, guys. Cash value makes sense for the client 0% of the time, and term wins 100% of the time. End of story

    ReplyDelete
    Replies
    1. I'm glad you're such an expert on insurance. You know so much you must be a well experienced agent. I, with only 1/2 a brain, a finance degree (magna cum laude) and economics grad student, shouldn't even try to comprehend such complex concepts.
      Now that insults are out of the way, lets talk like adults. There are crooks selling WL and crooks selling MFs (mutual funds). You are 100% wrong to say that WL never can benefit the client. If sold by a crook or someone that doesn't know how to structure it, then yes, it might not benefit the client much. At the same time, a lot of people can lose a lot of money investing in MFs. Yes, if you "cash it out" wrong you might pay taxes on your gains. But if you do it right you don't pay taxes on it. If it is structured right it can make a very secure and liquid investment. Liquid investments can be strategically very valuable.
      Obviously, for strictly insurance purposes, term makes more sense, and I'm not suggesting someone invest 100% of their money into a WL policy. However, in the right situation it can be a very valuable tool.
      I feel it is foolish to close your mind so tightly to anything. I have spent a lot of time meeting with agents and studying different types of policies and how they work. I have read the fine print and studied past performance. THERE IS NOTHING ABOUT WL THAT IS INHERENTLY EVIL OR STUPID. However, just like MFs there are good WL policies and bad WL policies. Just like investment advisers there are good insurance agents and bad insurance agents.
      If WL isn't for you, that's fine. Don't get it. I wouldn't say that is a bad decision. There may be a better decision, but no one will go broke for not buying WL. However, in the future I would recommend that you stop thinking you know everything there is to know about anything. Even experts continue to learn.

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    2. Term ONLY wins if you're lucky enough to die. WL from a top rated company guarantees you can get all your cash back if you live to long.

      Delete
  6. Hi, This is a good post, indeed a great job. You must have done good research for the work, i appreciate your efforts. term life insurance

    ReplyDelete
  7. There's also no-lapse universal life insurance, AKA lifetime term coverage, which is suspiciously never spoken of by the Dave Ramsey/Suze Orman drones. There is absolutely a logic in paying a few times more for your term policy to have it guaranteed for life. In many cases the aggregate premiums are only 10-20% of the death benefit.

    http://YourLifeSolution.com

    ReplyDelete
  8. This blog is fantastic. That's not really a really huge statement, but its all I could come up with after reading this. You know so much about this subject. So much so that you made me want to learn more about it. Your blog is my stepping stone, my friend. Thanks for the heads up on this post. term life insurance rates

    ReplyDelete
  9. To the person who wrote,

    "Why is WL even being considered or acknowledged as a possibility??? WL salesman try to sell these policies as an investment, which in my opinion is complete fraud. You borrow against your own money, get taxed on it (if there's any left at the end) and pay hundreds more than you should. It is clear that for insurance needs, it would be wise to purchase inexpensive term insurance. And anyone with half a brain should be able to understand the concept of investing into the global economy (mutual funds) for themselves, rather than paying a fraudulent, misguided idiot to poor their $ into a "cash value" policy. Common sense, guys. Cash value makes sense for the client 0% of the time, and term wins 100% of the time. End of story."

    I completely disagree with your statement. Fact of the matter is that people in their 60's, 70's and even later years still will have debts that they will leave behind to their families. They will also have beneficiaries that depend on them. WL is a great tool to use for protection but moreso as an investment tool. If you go with a mutual company which pays dividends then you get that on top of your cash value. WL can act as a supplement to retirement and offers you tax advantages that a lot of other investment tools don't use. For people who have to deal with estate problems WL is a perfect vehicle. My biggest problem with this person's post is about the issue of taxation. WL death benefits and cash value are received Tax Free and WL is not considered an asset (will not affect Student loans eligibility). If you go with a no name company for your WL then this might be true, but if you go with a great mutual company then you will definitely see a return on your money.

    BTW I am a life insurance agent who has sold Whole life policies to people and until I had learned the products inside and out thought the same way as people on this forum. WL has a lot to offer people. The biggest turnoff for most people is going to be the price tag but my suggestion is to buy majority term insurance and a little bit of WL in the beginning. As you make more money throughout your career you then convert your term to permanent insurance.

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  10. The insurance industry is filled with fraudsters and scammers. It is important to research well and ask for pieces of advice from trusted friends and colleagues before buying a plan. 

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  11. how about just self insuring. screw the companies

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  13. Dave Ramsey actually owns a boatload of traditional whole life insurance through Northwestern Mutual.

    ReplyDelete
    Replies
    1. How can you make such a claim? The man only promotes TERM for his listeners so I'm sure that he practices what he's preaching. There is just too much riding on his good standing for your claim of his owning whole life to be valid. IJS

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  18. Permanent life insurance is not an investment. The cash value is used to hedge against the cost of insurance. Because of that reason the CV receives special tax treatment when it is used in a manner that keeps the policy contract in tact (i.e. policy loans or withdrawals). When you surrender the policy you risk taxation. That is why when you use the CV it often results in a decrease in death benefit. That being said, permanent insurance is a financial tool that offers more benefits vs risk. It allows you to use what you have paid into the policy contract while you are still living. This would be equivalent to a self directed IRA. You keep the tax incentives as long as you use it within context. Permanent life is also issues contractual guarantees. There are no other financial tools that offer guarantees other term life, permanent life, and annuities. All of which are products of insurance carriers and companies. Even Dave and Suze base the advise on the strength of the guarantees the insurance offers. For that simple purpose, for me, if it good enough to be the base then it good enough for other purposes because you have nothing without the base

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