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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10 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.

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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!

    ReplyDelete
  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
  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

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    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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  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

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  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

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