I’ve shared my opinion plenty of times, the fact that I believe that 95% or more of life insurance needs for the average people out there are term insurance needs. There is no reason to be buying whole life, universal life or variable universal life.
Dave Ramsey doesn’t mince words when it comes to this topic and I admire him for that. Too many dance around the periphery and never nail down exactly what they believe in. To put it bluntly, whole life or universal life eat up an inordinate amount of money on a cost per thousand basis. It costs more for each thousand dollars of life insurance you want to leave your family.
That being said, the more you spend per thousand, unless money is just not an issue, the less life insurance you will be able to buy. At age 40 $500,000 of 20 year term insurance at the best rate class would cost about $430.00 a year. The same amount of whole life insurance would cost about $5000 per year. If you really have $5000 a year to put into this project, consider buying term and investing the difference in mutual funds. Even this recession doesn’t change the fact that there are plenty of mutual funds out there that have historically produced 12% or more return, but let’s use 10%.
We would be generous to say that the whole life policy would have generated $80,000 in cash value in 20 years. With mortality cost and policy expenses it would be doing well to produce that. If you invested the difference between the whole life policy and the term policy, $4570 per year at 10% for 20 years produces $288,000. 5 more years and it will have produced enough to replace that life insurance policy with cash. Self insuring. What a concept!!
There is one area where I believe Dave has missed the mark in saying no to all permanent insurance. There really is no substitute for permanent protection for estate tax purposes. I do agree with Dave that it shouldn’t be done with a cash value policy. Far and away the best permanent product is a universal life with an external no lapse guarantee. Permanent term insurance if you will.
Bottom line. Cash value policies benefit two of the three parties involved, the company, the agent and you. It’s not you.
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.
What kind of policy are you refering to by saying “cash value policy”? I would have included universal life as a cash value product as well and so would Dave Ramsey.
I agree with your take on permanent products not being the best option most of the time. Where I disagree with Dave Ramsey is when he refers to anything but term life insurance as “rip-off cash value insurance”. That implies that any company or agent that has ever sold anybody a permanent product was trying to rip-off their customer when in most of those cases they were probably giving the customer exactly what they wanted and in some cases exactly what they needed.
Michael,
Not sure Garden State has it, but there is universal life with an external no lapse guarantee. This is exactly the same guarantee mechanism used in term insurance. No cash value.
If you could get a company to illustrate the guts of a term policy it would show that the policy builds some cash value in the very early years and then it dwindles to nothing pretty rapidly. They don’t illustrate it on term insurance because it isn’t “available” cash value.
The no lapse UL is essentially a permanent term policy. Been around in Europe for a long time. Term to 100.
Dave still wouldn’t like it because he believes in self insuring and I agree that should be the goal for all of us. He doesn’t agree with me concerning small final expense policies because if you have followed his financial plan you should have cash available for that purpose.
I do agree with Dave that cash value policies are a rip off and forgive me if that steps on your professional toes. There really is no good argument for selling it or owning it given the alternatives available today.