My wife and I are participating in the Dave Ramsey Financial Peace University. I have to admit that for all that I have been blessed with, great financial management skills have not been part of the package.
Dave Ramsey is a no nonsense kind of guy when it comes to getting your financial life together. If a person could put his philosophy in a nutshell, it would be to have enough money saved and readily available for emergencies, get out of debt, save for retirement and be generous in your giving.
Many people believe that they have the first and third objectives well in tow with whole life insurance. They have been led to believe that whole life insurance, with it’s cash value accumulation feature, is a savings or retirement plan. I suppose one could argue that if it builds cash, it has saved money. The problem is, when you compare it with buying term insurance and truly saving or investing the difference, or buying non-cash value universal life and saving or investing the difference, the ugly truth floats to the surface.
Whole life insurance is truly a life insurance vehicle that is meant to enrich those involved. Unfortunately, those involved are in this order as far as the enrichment (cash value) goes. First of all is the insurance company. Next is the insurance agent. Last, and yes least, is you.
There should be no mincing of words when it comes to whole life insurance. It is not a savings plan. It is not a retirement plan. It is not even a good way to provide permanent insurance. I have heard all of the arguments to the contrary and I have heard the NW Mutual agents make their well rehearsed pitch for the life saving attributes of whole life. It is pure bunk. The only reason a life insurance agent would sell whole life is, pure and simple, their own enrichment.
Bottom line. If the need is life insurance, buy pure, unadulterated life insurance. If the need is savings or retirement, put your money into pure, unadulterated savings and retirement vehicles. A wide guy once said, “Don’t use your life insurance for savings, and don’t use your savings for life insurance.”
My 20 years of experience give me the knowledge and leverage to find reasonably-priced life insurance for people who have been declined or are paying more than they need to.
Without offering any solutions? Read it again. Buy non cash value, fully guaranteed universal life and invest the difference. It beats any whole life plan you would like to compare it to. Sorry, but the whole life bash is deserved and will continue.
This article fascinates me. Here is an individual bashing permanent whole life insurance without offering any solutions to everyday problems that we all face. I do not disagree with buying term if earmarked for a specific event, but the replacement value of permanent life insurance in retirement years far exceeds any rate of return on an investment portfolio
So help me out. I want to go in the business of building a practice and earn a commission income.
NW Mutual agents make a well rehearsed pitch? It’s a pitch? I’m asking as a prospective agent? So, MetLife and the others; they would be pitching something that, if I get under the hood, will present itself as bunk? NO, pure bunk? I really want to get this because my next career move is involved. I am a mid lifer, CPA with a mix of consulting and business development.
I like this field, I think, but do I have to bang out the numbers and look at policies, etc, to be sure? And if what you say is true, then these well compensated agents who have sold hundreds of millions of life insurance did not ultimately sell what was in their client’s best interest?
I got on this site because I am going through FPU and thought, hey, what is DR saying on all this, etc.
Thank you,
What I’ve said and will continue to say is that there are millions of improperly sold whole life and universal life policies in force. People need help and there are too few agents that understand what is happening and are willing to try to do something about it.
So lets take it all in consideration. The average return on a whole life policy is 2.7%. That is Dave Ramsey’s macro-industry number, and based on that, he is right that you shouldn’t buy whole life. But what if a company, over the past 30 years, has averaged a 9% return? Sounds pretty good in my opinion. Northwestern Mutual has done that, and that is why I own permanent life insurance. With the new tax codes that are coming out, there are only going to be two major solutions to sheltering your taxable assets (savings, CDs, stocks, bonds, mutual funds, etc.) from taxing in the upwards of 50-70%. Those two ways are a Roth IRA, which in 2010 will be available to all walks of people regardless of income, and permanent life insurance.
Now I’m not advocating putting all your money into whole life. Don’t misread that. But I’m saying if you want your money tax-sheltered, something that is going to give you a 9% average return (if you have done your homework you would know stocks have a 9% average rate of return over 30 years) with the risk level of US Treasury bills, and something that is going to provide for your family in the event of your death WHENEVER the good Lord decides it is your time to go…. where is the issue? Again, not saying this is where you should put all of your money. But if I’m a savvy person and want a low-risk portion of my diversified portfolio to be pumping out the kind of return NMFN’s whole life insurance is doing over the long-term, then I fail to see any reason why the buy-term-invest-the-difference is better.
First and foremost, BYID is a horrible philosophy right now. You see anybody really advocating for it these days when people lost 30-40% of their retirement savings? You think they would have been happy with having a portion of their portfolio put out 6-7% in the green and not the red? That is what mine did. Even in the harshest of economic times, I had a piece of my portfolio that safeguarded me in multiple ways. Second, do you know that a big portion of those BYIB believers never actually take the difference of term and permanent and actually in fact invest that difference in the market. Why? Because they’re not thinking about investments once they leave the office of their advisor or rep. And even if they did, they lost their you-know-what this past year in the market. So either way, BYID flat-out doesn’t work.
Dave Ramsey speaks on a lot of things that I agree with, such as disability insurance and long-term care. But as far as life insurance goes, I politely disagree.
Matt,
And there is that side of the story. While compelling, I would suggest possibly not for the same reason as you portray. NMFN is a company that has been “guaranteeing” higher than industry returns for several years and at this point as much as 3 times industry average.
Being a behemoth cash cow of a company allows that tactic to work as a way to capture more market share, at least for a while. At the same time their interest rates have been going up, their dividends have been slowly going the other direction.
In this day of failing big companies I would call that a red flag rather than a safe haven. Call me pessimistic, but most in the industry don’t see the tactic as sustainable.
I am not naive enough to say that all people buy term and invest the difference. I suspect that for many they are buying term and attempting to stay even with their mortgage. Or buying food. They could of course borrow money from their whole life policy, but what is not needed today is another form of debt, no matter how cutely packaged. It’s still debt and it is debt that can leave a family with too little insurance, or none at all.
Whole life, I would respectfully submit, offers most families with too little insurance for too much money. Where we part ways is that you would use whole life as part of your portfolio and i wouldn’t, NMFN or not, use it at all.