Dave Ramsey is a renowned radio show host and is the author of 7 best-selling books on financial management. Currently, he educates others on how to be responsible with their money in order to acquire enough finances to take care of their loved ones, retire without worry, and still have some savings for any emergency.
Whole life insurance is a policy that guarantees to stay in effect for the insured’s entire lifetime, but only if the required premiums are paid or if the maturity date has arrived. However, Dave Ramsey’s insurance recommendation is that it’s not a good investment with cash value accumulation.
He considers cash value plans to be fraudulent. Ramsey also says that families who have enough money saved to pay for final expenses do not require life insurance. The insurance expert advises to get term life insurance for families who require financial aid after the unexpected death of a family member.
This article dives deep into Dave Ramsey insurance recommendations and his opinion on whole life and burial insurance to see if they are accurate.
Dave Ramsey on Burial Insurance
Dave Ramsey mentions that whole life insurance is sold by highly combative insurance brokers, and the insurers’ exorbitant costs make it unaffordable for the average person at times.
However, many people associate whole life insurance with cash value as they fall under the permanent life insurance policies.
Types of Permanent Life Insurance:
- Burial Insurance
- Whole Life
- Universal Life
The advantage of having permanent life insurance policies is that they last throughout your life. They do not expire even if you develop severe health issues as the years pass by and you grow old. Even the insurance company cannot cancel, revoke, or reduce the policy benefits if one pays all the premiums on time. It is active throughout your life and pays your beneficiaries upon your death. The insurers fix the premium and death benefits, and hence, there is no worry about fluctuating payments. It also allows you to make a policy loan or withdraw money on the cash value in times of need.
Below are the reasons why Dave Ramsey is not keen on burial and whole life insurance:
- Whole life insurance is high-priced and less affordable when compared to term life insurance.
- Beyond 20 or 30 years, there is little need for people to buy life insurance.
- Whole life insurance has a significantly lower rate of return on investment when compared to other investment plans.
- Mixing life insurance and investment is not recommended.
Whole life insurance is high-priced and less affordable:
When compared to term life insurance, whole life insurance can be considered a bit pricier. However, because it lasts throughout a person’s life and ensures guaranteed payment upon death, buying a whole life is more expensive than universal life insurance. One cannot compare term insurance and whole life insurance on the same platform as they have obvious differences regarding the target population and the purpose they serve.
Dave Ramsey advises purchasing term insurance instead as the premium is significantly less than the whole life insurance. For example, on average, a person who is 50-years old and invests in whole life insurance would have to pay $350 to get a policy worth $250,000 as a return. However, if he invests in a 30-year term policy with the exact coverage amount, he would pay significantly less as it would cost around $32. Dave suggests investing the difference amount in mutual funds or other term investments.
Dave argues that whole life insurance does not make for a good investment since many people let the policy lapse within five years of purchase, mostly due to the excessive premium amount. It would take no less than 15 years to get the surrender value up to the premium amount paid.
Therefore, when it comes to burial insurance or whole life, Dave Ramsey says that a person should be willing to invest the amount consistently for a long time to gain any benefits. As 20 to 30 years is a massive commitment that people might find it difficult to keep, it does not work out in the long-term. This is reinforced by statistical data too. It shows that 80% of the people who have invested in whole life insurance have let their policy lapse, allowing the insurers to put their money to use for low-interest rates in return. They will have reaped the same benefits if they have put the money in their 401(k).
Whole life insurance has a significantly lower rate of return on investment when compared to other investment plans:
Dave says that when one compares investments made in whole life insurance and mutual funds over a period of 30 years, the cash value growth is dim in whole life. Although mutual funds give back good returns, sometimes as high as 10% to 12%, they come with more risks. With whole life insurance, the growth is slower, but is steady and ensures guaranteed returns.
Mixing life insurance and investment is not recommended.
According to Dave Ramsey’s insurance suggestions, life insurance and investments have to be kept separate. He urges people to invest their money in mutual funds and term insurance which give higher returns. However, for people who want to maintain a diverse portfolio for investments, including cash value investment is a smart move, as it has assured returns and is financially beneficial.
It is important to note that Dave’s opinions could be inclined this way as he has affiliations with term life insurance companies and financially benefits from them.
Beyond 20 or 30 years, there is little need for people to buy life insurance:
Dave Ramsey believes that whole life insurance is not required. He believes that those over 40 years old and who have invested money in mutual funds rather than permanent life insurance would have earned over $500,000 by the time they reach 90 years of age.
This would make them ‘self-insured’ as they would have saved money and would be capable enough to pay for funerals without insurance. Therefore, there wouldn’t be a need to buy whole life insurance after 20 or 30 years.
Here comes the question about the accuracy of the statement. Will there be a need for life insurance beyond 20 or 30 years?
Many in their 50s and 60s realize that their term insurances would be expiring soon. But as they would still need coverage, they call insurance companies and ask for quotes and advice on permanent life insurance policies. Many would not have been able to invest enough in term deposits due to financial setbacks caused by employment or medical issues. This would make them look for life insurance coverage beyond 20 or 30 years.
Sometimes, people who just want to make provisions to keep their families financially secure after their death might opt for life insurance.
Burial Insurance: Good or Bad Investment?
It is important to be clear that burial whole life insurance and final expense insurance are NOT investment opportunities. They are guaranteed financial safety nets for your loved ones upon your death. One should not compare them with mutual funds as they focus on providing assured returns to the beneficiaries and not compete for financial growth.
Permanent life insurance provides financial security throughout one’s life and assures payment even after one’s death, as long as the insurers get the money. The cash value is a benefit built into whole life insurance. You can redeem them in the form of loans during times of need. This ensures that you wouldn’t have to lapse insurance due to financial issues and have money when necessary.
As the premium amount is set from the time it is bought till benefits are paid, there is no worry about the payment increasing as you grow older. As long as you pay the premiums, the fixed death benefit amount will definitely be handed over to the beneficiaries mentioned while making the insurance. This makes whole life insurance the ideal choice for plans to secure funeral or final expenses.
Term Life Insurance: When Is it Not Best for You?
Life insurance coverage may not be the best option for you in many situations. If you want to ensure that your family does not have the burden of paying your funeral, it is better to opt for burial insurance. This insurance helps in covering the final expenses for people in their 50s to 80s years or older. It is also an option for people with severe medical conditions who are not eligible for term life insurance.
What makes whole life better than term insurance is that it provides fixed coverage up to the age of 121 years, making it virtually impossible to expire as a person’s age progresses. It provides coverage, even if the applicant has severe health conditions. Term insurance usually helps people with replacing income, paying off mortgages or debts. Whole life insurance ensures that the death benefit is paid to the beneficiary and provides a sense of satisfaction for older people looking to secure their loved ones’ finances upon their death.
Whole life insurance is permanent and provides assured financial benefits throughout your life. However, term life insurance terminates after the set period of investment, usually between 10 and 30 years, and does not guarantee economic security to your family when you die.
It also becomes tough to be eligible to buy term insurance as you get older, especially if you have developed any health-related issues due to old age. Statistics show that only 30% of applicants over the age of 60 get accepted for term insurance. Therefore, burial insurance is the only way for the rest of the population to ensure their financial security.
As Dave Ramsey insurance quotes, term life insurance is a great investment opportunity. However, the criticism of his recommendations is that it is not for everyone, and it does not hold well in all situations. There are many cases where people have not been able to get the money necessary for final expenses when they depended on term life insurance for benefits.
Many American citizens do not make much income and hence depend on social security or pension money to make ends meet every month. They would not have had the chance to save enough to pay the exorbitant prices of funeral services. This means millions of people are looking for alternate ways to secure the final expenses before their deaths to not burden their families. Whole life insurance ensures that this sect of society gets the financial security it deserves. Dave Ramsey’s advice on life insurance policies does not bode well when it comes to these aspects of burial insurance.
Zander Insurance company also emphasizes the importance of whole life insurance in final expense and funeral service, which Dave Ramsey endorses. The gist of the information given on their website provided below.
In an article headed, “Should I Buy A Burial Policy?”, they have described that term life insurance has an expiry date which could come well before one’s death. So, it is not an ideal choice if one plans to secure their final expense or funeral. Insurers have designed term life insurance to help people grow their savings and concurrently pay down debts not to have to depend on life insurance at a later stage.
When it comes to life insurance, Dave Ramsey recommends using emergency savings and not purchasing whole life insurance for the purpose of funeral expenses. However, that might not be the case for people who have not saved enough money during their working years. Buying burial insurance policies from companies would help such people take care of funeral-related payments. Even though Dave does not endorse buying cash value insurance plans, they would be the only options left for people experiencing financial crisis, medical issues, and old age. They would not qualify for term life insurance coverage.
Although Dave Ramsey believes that burial insurance is not a good investment option, the term life insurance company that he supports, Zander Insurance, expresses its importance for people in extreme situations. It is beneficial, especially for people with low fixed incomes who are incapable of accumulating enough money for their final expenses, resulting in their families taking up the burden of paying for their funeral.
Whole life insurance is an excellent alternative for the sick and the elderly as it provides guaranteed insurance coverage despite their age and medical condition. As mentioned before, it ensures that the funeral expenses are taken care of and that their beneficiaries have financial protection after their death.
Whole life insurance stays true to the word and provides economic security to your loved ones, in turn, providing you with a sense of peace.
Do you need Funeral Insurance Funds: How Does it Provide Assistance?
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