Why Is Term Insurance Better Than Whole Life Insurance?

natalie is with us in Baltimore hi Natalie how are you how are you better than I deserve what's up um well I was just tuning in to your show not too long ago and you were speaking about life insurance and how whole life is at solution I've never understood how or why that is necessary or true I believe I believe that whole life was better and I started out speaking whole life and so I ended up buying a policy for each of my three kids and I have a universal policy from the mom and the policies I have for my three kids and one is it's called a hole a ten page where you pay it for ten years and it's paid up yep and so I did that with my oldest daughter she has a policy it's only fifteen or twenty thousand for her yeah that's a standard standard calcium the reason you believe this is what you it's what you've been sold okay but let's walk let's walk through it for a minute okay there's two kinds of insurance as you mentioned there's cash value insurance and there's term insurance right term insurance on average runs about one-twentieth the cost of whole life or cash value insurance in other words you could have bought that same policy instead of spending a hundred dollars you'd buy a month or whatever it was let's use a hundred with an example then you'd spend $5.00 a month so what does the extra ninety-five dollars that you're going to what does it go to okay well it goes to build up a savings account inside the policy called cash value does that sound familiar to you well and that's why you bought it because you thought it builds up a cash value that's awesome all right and here's the thing the problem is not that the problem is that the rules or the guidelines that happen to what happens to the money in the savings account on average it's making about one to one and a half percent horrible rate of return number one number two if you want your money out of the policy you either have to cancel the policy or you have to borrow your own money now you put the money in there you put the money in there but when you take it out on a loan you pay them interest to borrow your money mm-hmm well that's kind of stupid yeah you know you wouldn't take money out of a savings account and borrow borrow it from the bank you know and give them interest to borrow your own money back not if you're smart anyway and then the worst the worst part of I mean the fees are really high the cash value doesn't build up for many many years but after two or three years finally it does start building up so it's really heavy loaded fees on the front end and then the worst part though is this you got a fifteen thousand our policy on this kid what's the cash value in one of those as an example I'm sorry I don't even know what I don't even know what the tests are you or any of them I'll give you again I'll give you a guess let's say let's say it's five thousand dollars if you close the policy that they'd get five thousand dollars all right and you've we've just established that you've paid extra for that five thousand dollars to be in that policy so you have a savings account inside that policy right right you paid a lot more for these policies than you would have for the same amount of term insurance all a lot more now so so that five thousand dollars it's in there it's your money the problem is this if the person that the insurance is on dies they don't pay the fifteen thousand insurance plus your savings they pay the fifteen thousand insurance what happened you're saving oh it's gone oh and the only way you get better the only way you have a prepaid insurance policy of a 10 pay policy is that that's not paid up it just means prepaid because here's the deal if you're an insurance company and you are issuing life insurance as long as that person is alive or as long as that policy is in force there is a cost to cover them because there is a statistical probability of their death that after 10 years the statistical probability of that person's death did not go away right so they still have a cost associated with keeping that policy on the books even though you've already got it paid up but all you did was just prepay it so you double paid and triple paid to pay in advance for many years to come and that's how it gets paid up that's the only way there's there's no such thing as paid up insurance it just means prepaid now they call it paid up because that's the that's the phrase they want to use so what would I do if I were in your shoes well if the people need life insurance let's get life insurance on them make sure the life insurance is there and then I would close these policies and now if they're ill and can't get life insurance then you're stuck and you know you're they're stuck in the policy because their health situation doesn't allow them to change because they've lost their health since they got the policy but if they have a need for life insurance and can get life insurance then buy the life insurance to replace it and then cancel this stuff and put your investments in something else that when you die they don't keep your money so you just don't want to go there it's just a really really bad place so that's why it's just inordinately expensive it is one of the worst financial products on the market today the car lease the whole life life insurance policy the credit card are the three things that are keeping the middle class in the middle and people just they're just getting messed over I mean when you crunch the numbers on any one of the three of those things it makes you go ballistic about how bad they are about how rough the consumer is being treated in every one of those situations so I stay away from it I would only suggest and for 25 years here on the radio I've only suggested term life insurance and I've never suggested anyone lease a car and I've never suggested someone get a credit card because they hold you back causes you to not win I want you to win now obviously the people in those industries don't like me oh well I'll have to live with that oh darn really wasn't signing up to take a poll here anyway we're just here helping folk and if you you know and you know who else doesn't like me well that'd be the title pawning people and the rip-off payday loan people because I tell people they're the scum of the earth I mean not only ripping people off but you're up and poor people off I mean because that's who play that's who does title you know you notice that payday lending is not the rich into town right well they don't need it over there no they're too dadgum smart to do it that's why they're rich hello so if you just keep doing stupid poor people stuff you'll stay stupid and poor I mean hey I've been there I know what it looks like I did stupid and I've done poor I know what it looks like actually I've never been poor I've been broke poor is a state of mind but I'm not gonna live like that I'm not going to continue to make the same mistakes over and over and over again then scratch my head and wonder why I'm still broke so you've got to make decisions on how you're going to live and look around and say okay this is what wealthy people are doing let's do wealthy people stuff and you know there's a few wealthy people my whole life because they get sold - crap - but not very many most of us I mean I can tell you in the financial advising world and the financial coaching world the financial counseling world I don't know anybody that recommends cash value insurance except people who sell it I can't find them there's no outside people with a that don't have a conflict-of-interest looking at it like me and going oh Dave you're wrong you can't add no I can add you keep somebody's money after they save it for 20 years at death that there's no way that's a good return on investment it's just bad and that's what this whole situation comes down to so those of you they don't like it you don't like me oh well I think I'll be able to live with that this is the Dave Ramsey show hey guys thanks for watching if you enjoyed this video click the subscribe button to get the latest content and check out these other great clips from the show you can do this you know that really is a message whether you've got two hundred seventy thousand dollars in student loan debt or 27 thousand well you've got a fifty thousand dollar income a five hundred not really come

Channel: The Dave Ramsey Show

Views: 272,103

Rating: 4.7467451 out of 5

Keywords: why is term insurance better than whole life insurance?, dave ramsey live, dave ramsey live stream, dave ramsey, dave ramsey show, whole life insurance, life insurance, dave ramsey debt free scream, debt free scream, term life insurance, insurance, life, cash value, money management, person finance

Id: mPRTp6XrScM

Length: 9min 4sec (544 seconds)

Published: Thu Oct 20 2016