Why Dave Ramsey HATES Whole Life Insurance!

foreign New York City Welcome to the Ramsey Show Hey Thomas Merry Christmas Merry Christmas to you too Dave thank you so much hello gentlemen how you doing great man what's up nothing quick question first of all I just want to just watch preface if I think Dave I've been listening your show for a while and I really want to thank you for every all your advice I used to be one of those people that really just thought about well yeah I can afford that payment I you know I can afford that payment and just all of a sudden I'm just under this massive amount of debt and after listening to for a couple months I've just basically restructured the way I do everything I'm just you know stop buying stuff I'm getting my debts paid off I'm within a couple years I plan to be completely debt free so thank you very much for your your advice um my question my question is I've heard you talk a little bit about Whole Life policies now my wife and I right now have Whole Life policies they're good until we're 125 years old we have about 1.5 million dollars in coverage cost us about 680 a month to have that um and I've heard you sort of say that you didn't think they were a great investment but I haven't really heard you get into any details about why you think that is so I was wondering if you could just talk about that a little bit and you know maybe maybe I'm missing something and if if I am I'm sure you'll you'll hit the point okay sure um well the the overarching main companies that sell whole life the numbers break down about like this per hundred dollars that you pay in premium you can buy the same amount of term life insurance 15-year level term 20-year level term for about five dollars got it it's roughly 20 x okay and uh for the insurance obviously whole life though has another component to it the term does not have you're obviously aware of that you spend a lot of money on this and that other component is a cash value buildup now the cash value buildup is the other 95 dollars out of a hundred dollars approximately could be 91 dollars could be whatever but it's somewhere in that range nationally across the top 10 like whole life insurance companies it is 95 okay so ninety five dollars going into cash value five dollars purchases the same amount of insurance life insurance now so then the the gripe that those of us have that hate whole life life insurance and it's not a mild dislike I hate it um is that is that what happens to that ninety five dollars and uh in cash value what you will do and you're well past this but if you went back and looked at your policy Pages your cash value build up for the first three years your savings build up is zero one hundred percent of the ninety five dollars goes to fees it's front loaded as an investment which in and of itself is not necessarily evil it's just frowned upon in the financial planning World by and large um the second thing is that once you do start building it nationally and again don't know your policy but it's not going to be substantially different uh the average rate of return on the 95 dollars if you look at your actual cash value build up including the three years of zeros on the front end it ends up being an average of about 1.2 percent let's be generous and say it's double that 2.4 still not a good long-term investment if I could get 2.4 on my money market I'd be dancing a jig but uh but not on my long-term Investments my long-term Investments need to be north of 10 to be beating inflation and taxes and so it's a horrible rate of return on a long-term investment and those two things are bad but the the the stake in the heart of whole life and the reason the entire financial planning community that are not in the whole life life insurance business have abandoned whole life no one sells this but whole life insurance agents no one sells it anymore no traditional financial planner no smart investor Pro no one in the financial World sells it the only people that sell it or whole life agents they've gone away from it and and this is the reason once you've paid the extra 95 dollars to build up build up build up build up and uh on your 680 dollar premium you you said you had a one point something million dollar policy one I've got a million dollars my wife has half a million and that's our combined premium is just dating okay so 1.5 million if you die your wife the beneficiary I assume would get one million dollars that's your face my daughter it doesn't matter if you're talking about yes yeah whoever the beneficiaries is going to get the million dollars right that's what they're going to get that's all right if you have a cash value of 200 000 at 2.4 percent that you put 95 dollars per hundred in to get to 200 000 or to get to a hundred thousand none of that you so you have a savings account that for the first three years you put in there gives you nothing after that it pays 2.4 percent and when you die they keep your money all right which makes it absolutely horrendous so you're much better off in many many decades ago the financial planning Community by and large started moving towards buying term life insurance for the five dollars per hundred and doing almost anything else with the 95 but over in the investment world away from the insurance world you put it in a freaking fruit jar at least it's there when you die okay so you said would you would your advice be to just terminate those policies and just put and do what you suggested purchase relatively inexpensive term Life policies and then put you know additional money I mean I I do have Investments I mean I could just up those Investments I invest into the directly mostly directly in the S P 500 I've got a 401k exactly so would you get the term life in place first yeah exactly get your term in place first never cancel life insurance until you've got new in place because we don't want you to have the proverbial milk truck or bus in the middle okay between the two just look at the money I've been spending over the last five ten years is just write that off and just start it'll make you want to throw up yeah yes but that's that's the case now you will get you will get your cash value out by canceling the policies whatever it is okay that doesn't it doesn't uh it does not then but you never get both I understand you never get the insurance and the Investments and you're always paying for both and that's the got it that's the consumer Advocate like us our reason for hating on these things and just saying they're absolutely horrible it's an Antiquated product from the 40s and 50s that built large buildings in the skylines of almost every city and uh and that everyone now has pretty well moved away from except the companies with their name on that kind of stuff so uh anyway okay all of that to say no one last cat one last part of this discussion that's worth having because you're you're obviously doing well financially and you're you're doing really good with your analytics on this the last thing that happens is the the irony is that we really don't necessarily need life insurance for our whole life right so if you've got two or three million dollars in your Investments and zero debt and the kids are grown and gone and you die oh I think your wife will be okay yeah I was looking at it as like I will I can I can die broke if I want to and at least they'll have this much but I you're right in the sense that I I won't be able to spend all my money no but if you put the 95 in a fruit jar You Wouldn't Die broke right exactly right okay I'm doing it thank you Dave hey man thanks for the call wow well great discussion I thought whole life was going to be like time shares where it just kind of dies over time but Tick Tock has caused a Renaissance of whole life agents to start their financial planning influencer careers you're kidding and so now so they're like whole life guys that are trying to make it cool again well they're peddling it makes their life cool again you've seen this index universal life infinite banking Dave the world banking this is the hack wealthy people don't want you to infinite banking is back that was a scam from like 20 years ago well gen Z is eating it up on on The Tick Tock Dave oh so yeah it's caused this Resurgence infinite banking is code for whole life that sucks bad that's what it is you know so the infinite banking is you put so much in the whole life that it starts to pay its own you borrow money from yourself Dave it's do you borrow money from yourself and guess what there's no taxes on borrowed money well no kidding doofus there's never been taxed at on borrowed money you just run over there and get you a credit card down oh my God there's no taxes on the debt you dumb butt of course there's not what I can't believe infinite banking is being made Tic Tac just ignore oh my God this Tic Tac thing is just driving me nuts now it's Tic Tac according today well here's the takeaway get term life 10 to 12 times your annual income 15 to 20 years I bet I could make it on Tic Tac for sure you can this is this clip is the start right here oh man

Channel: The Ramsey Show Highlights

Views: 266,348

Keywords: the dave ramsey show, budget money debt cash, real estate, insurance, how to make money, dave ramsey, save, credit card, compound interest, buying house, buy, snowball, Why Dave Ramsey HATES Whole Life Insurance!, whole life, whole life insurance

Id: 1qRFbPuiXPw

Length: 9min 22sec (562 seconds)

Published: Wed Dec 07 2022