BeamaLife Blog

For the past few of weeks, I’ve been going through Dave Ramsey’s argument that everyone should buy term life insurance rather than permanent life insurance, which he called “one of the worst financial products available.”  Earlier, I compared that comment to someone in a hardware store saying “a screwdriver is one of the worst things you can buy in a hardware store.” 

There’s a tool for every job, and of all of the financial products available, I can’t think of a better one for the purpose that life insurance was intended to deal with.  Think of some of the other financial products out there.  Like stock market investments.  If you were to die today, would the shares in your portfolio provide for your family’s needs?  Would they pay for your children’s educations?  Would they let your spouse continue living the lifestyle that he or she lives today? 

Of course not.  And that’s not because stock market investments are bad financial products.  They’re just not designed to give you the assurance that if something happens to you, your family will be taken care of.  All different life insurance policies are like medicines in a pharmacy. It depends on your diagnosis and prescription of your doctor.

I wish that Dave Ramsey, and few other well meaning financial gurus just like him, would stop advising people to buy term insurance when whole life insurance is, in so many cases, a much better product for the risk  that they are looking to minimize.  Now, I’m not going to say that you should NEVER buy term insurance.  I think that there are lots of questions in life to which the answer most often is “that depends.” 

If you can’t afford a whole life policy, but need to protect your family, then buy a term insurance policy. Whole life insurance is a biggest tax loophole out there. It provides tax deferred growth, tax free death benefit, estate tax free if you structure policy in a right manner, tax free access to cash value via loan, very competitive internal rate of return with guaranteed cash value, creditor protection, unlimited contribution, collateral and disability waiver.   

The last thing any financial expert should want is for you to get paralyzed by the arguments about what kind of insurance to get, and to wind up not getting any.  So I want to be careful not to leave you feeling that way.  Please make sure your cover yourself with your fullest human life value.

Finally, the truth about Dave Ramsey, he might not be getting commission in advising you on buying life insurance but he definitely getting some term insurance website endorsing fee. Isn’t it close to commission???

So, you’ve made it to 50 years old, and your term life insurance coverage is ending, and the money you’ve been investing for the last 20 years is not worth nearly as much – in real dollars or in dollars adjusted for inflation – as the financial guru who sold you on this idea led you to believe it would be.   What’s going through your mind?

First, you’re thinking that your 50 years old – not nearly in as good a shape as when you where thirty.  You’ve probably got health conditions that you didn’t have when you bought that term life policy.  And that means, getting a new policy today will be much more expensive.  You may even have a condition that life insurance companies don’t want to cover. 

Second, you’re thinking that you still have a lot of things you need to provide for.  Maybe your kids are not out of college.  Maybe they’re not even out of diapers.  You can’t not buy life insurance because you still have a lot of current responsibilities.

And third, you’re thinking about your spouse.  Would he or she be able to continue in your current lifestyle if you were gone?  Would the house be paid for?  Would your remaining investments allow for a comfortable retirement?

The person who, twenty years ago, bought the more expensive whole life insurance policy is NOT paying the premiums anymore.  His family is still protected at the more death benefit than 30 years back, while you’re trying to figure out whether or not to buy a much more expensive term life policy or a whole life policy with a benefit that is far less than you need because it’s all that you can afford. 

When I was a child in school, and we’d be playing a game in gym class, occasionally something would go wrong, and we’d have what was known as “an official do-over.”  We’d wipe the slate clean, and then throw another pitch, or take another shot, or run another play.  We got to pretend that what just happened didn’t really just happen. 

But life isn’t like that.  Every decision has consequences, so you have to make every effort to make the right decision the first time.  There are no do-overs, and mistakes can be costly, for you and for those that you care about.  Next time, I’ll tell you what I would have said if I’d been Dave Ramsey and someone has asked me to tell the truth about life insurance.

It may come as a surprise to you, but I agree that the advice to “buy term and invest the difference” is a great prescription for a bright financial future.  I also think that “do unto others as you would have them do unto you” is a great prescription for a happy society. 

But the real world is very different.  You don’t have to look far to find situations where human pride and selfishness has led to the trampling of the rights – and happiness – of other people.  And you don’t have to look far to find examples of why “buy term and invest the difference” rarely works for your finances.

In Dave Ramsey’s article, he uses the example of a 30 year-old man who has $100 per month to spend of life insurance.  According to Ramsey, the cost of a whole life insurance policy from each of the top five life insurers would cost about $100 per month to purchase $125,000 in coverage.  A comparable term life insurance policy, Ramsey asserts, would cost about $7 per month (Actually, I checked top 100 life insurance companies and even the best possible health class it is at least $15 per month)

Ramsey suggests that if this hypothetical person bought the term life policy, and invested the difference – $93 per month – at the end of 20 years, he’d have more money than if he’d bought the whole life policy.  Is that necessarily the case?

Well, if you’d been investing that money faithfully, starting in 1987 and continuing all the way to 2007, you’d have just reached the end of your twenty years and watch the value of your investments today! I don’t think there’s anyone out there who is willing to state that investing your money is a safe way to guarantee its continued growth. 

But let’s just say that you did average 10% annually on your investments, and there were no market corrections – all of your stocks and bonds and mutual funds performed exactly as you’d have liked them to.  Then, you have to account for your expenses – every transaction costs money, and just for managing your money, investment houses charge a fee.  So, you have to take that part out of your return.

And, of course, there’s inflation.  Each year, over those 20 years, your money is becoming worth less and less.  So that’s another couple of percent that you need to deduct for inflation.  Take that part out of your return, and what looked so stellar a few moments ago does not look at all stellar right now.  Next time, I want to explore the sinking feeling that sets in when most “buy term and invest the difference” devotees figure out they made a very poor choice – one that it’s too late to change.

Last time, I started picking apart Dave Ramsey’s article called “The Truth About Life Insurance.”  I covered Ramsey’s claim that “cash value life insurance is one of the worst financial products available.”  And now I want to talk about his next comment, namely that is “sad” that 70% of life insurance policies sold are cash value life insurance, while the other 30% are term life insurance.

Term life policies, in case you don’t know, are policies that provide coverage for a period of time – maybe five years, or 10 years, or just while you’re working for your employer – some period of time, but definitely not until you actually die.  Cash value policies, on the other hand, provide coverage that goes until you die, whether that’s tomorrow or a thousand years from now.

Here’s something that Ramsey doesn’t mention in his article, probably because he doesn’t know it.  Out of every 100 life insurance policy payouts, 99 of them are for policy holders that owned whole life insurance.  That means that just one is for a policy holder that had a term policy. 

According to the Penn State University study, 45% term life policies are terminated or converted within the first year, and 72% are in three years and only 1% end in death claim. And what do the policy holders who owned term life but didn’t die during the term get?  You know the answer – they get absolutely nothing.  So, back to Ramsey’s argument; cash value life insurance is one of the worst financial products available today.  Really, Dave? 

I think that if someone offered to take my money, and then gave me a one in one hundred chance of ever seeing it again, I’d have to pass on a financial product like that!  But Dave Ramsey is only too comfortable suggesting that every person who watches his show, listens to his podcast or reads his newsletter take that chance.  If we all follow his advice than 99% Americans are going to die without leaving any legacy and potentially medical & funeral bills for children!

Next, Dave moves into the old “buy term and invest the difference” strategy.  No question, term life policies, when you’re young, are much less expensive (rather out of pocket dollars) than whole life insurance policies.  And when an insurance company pays one death claim for every 100 people who are faithfully paying premiums, they can afford to make them cheap!  Remember, insurance is a smart statically calculated formula: where you going to pay virtually NO claim – less premium.  Next time, I’ll show you why “buy term and invest the difference” almost never works!

It isn’t often that I get upset about things. But every time I hear someone quoting Dave Ramsey, I think about his ideas on life insurance.  And that makes me quite CONCERNED about the next generation American.  I am a fair person and admire his advice on credit and frugality, so I’m not going to say that he offers nothing of value in his financial advice.  As my grandfather used to say, “even a stopped clock is right twice every day.” 

But when it comes to advice about something as important is life insurance, not only is he pretty far off the mark.  I would go so far as to assert that he’s hurting the financial futures of thousands of people who, not knowing the real story, might take his advice.  And I’d like to spend a few weeks going line by line through his article shedding some light on a subject that he’s very much in the dark about.

Ramsey begins his article with the following assertion: “cash value life insurance is one of the worst financial products available.”  Now, I know that anyone who wants to be on TV has to be willing to state an opinion with certainty, and that means making a universal statement about something.  Anyone who is supposed to give advice should have a strong opinion. 

But in this case, Ramsey’s comments make about as much sense as an expert on hardware saying “the screwdriver is one of the worst tools you can buy at a hardware store.”  That sounds pretty foolish, right?  I mean, if you have something that you need to screw together, can you think of a better tool?  I’ve never tried using a hammer on a screw, but I’m pretty sure the results would NOT be pretty. 

My grandfather also used to say “every generalization is true, and every generalization is false, including this one.”  I’ll give you a minute to think about that one…because in every generalization, there’s also a bit of truth, but there’s never the whole truth.

Stephen Covey, in his book The Seven Habits of Highly Effective People, wrote that to be successful you must “begin with the end in mind.”  Only then can you decide what road to take to get you there.  Whether or not life insurance is a good choice among the universe of financial products depends on what your “end” is. 

Ramsey’s claim is that regardless of what YOUR end is, cash value life insurance is a waste of money.  And that’s just plain wrong.  You need the right tool for the right job, just like you need a screwdriver for some things, and a hammer for others.  In a few days, I’ll talk about Ramsey’s next comment.  He writes “Sadly, over 70% of life insurance policies sold today are cash value policies.”  What’s truly sad is that the other 30% are term life policies.  And next time, I will tell you why!

The first law of insurance is to “insure first” that which you can least afford to loose;

1) Your Income

2) Your Health

3) Your Life

The only real security is that which you create for yourself and your family.

A few months ago, the word was spreading throughout the industry.  There were magazine articles, and nightly news reports sending out the story that term life insurance rates were on the rise, after more than 10 years of declines. 

But honestly, there’s very little historical information about the cost of life insurance.  It’s not like the stock market, that’s tracked every moment of every trading day.  And different life insurance companies charge differing amounts for the exact same coverage on the exact same person.  So in a sense, it’s hard to say what’s truly going on, except in the most general of terms.

One article I read talked about how in the mid 1990s, the cost of a $500,000 term policy for a healthy 40 year-old man was close to $1,000 a year.  By 1999, the article continued, the cost had dropped to about $425 per year for the same coverage.  And by 2009, the cost had dropped further, to about $360.  The alarming thing, according to the article, was that at the start of 2010 the cost had risen to $400.  

Much of the decline in price can be attributed to the fact that people are living longer these days.  The more time that exists between when you start paying for your life insurance policy and when the life insurance company has to pay your claim, the less expensive the life insurance can be.

And much of the increase can be attributed to what’s happening in the financial markets these days.  Insurance companies are facing the same tight credit market that the rest of us are.  Understandably, insurance companies have to be more concerned about their own financial futures than they needed to be just a few years ago.

So if the costs of life insurance really are on the rise, should you rush to purchase a new life insurance policy?  Ask a local agent, and the answer is very often going to be “yes.”  Ask us, and the answer is going to be “it depends.” 

Ask yourself these two simple questions,  First, is there someone or something that you care about that would suffer if you were to die?  Think about your family, your business, your favorite charity or religious organization.  And second, do you have enough money right now that you could set it aside for them? 

If you answered “yes” to the first question, and “no” to the second, then I’d say it’s time for you to buy life insurance, regardless of what’s happening with the overall costs of coverage.  Buy the policy that best fits your needs now.  If prices go down later, you can “refinance” your policy and lock in the new, lower premiums.     

And if you already have insurance, but haven’t checked prices in recent years, take a look at a new policy.  You may find that there’s money to be saved.  It all starts with a quick phone call to BeamaLife!

One of the fastest growing segments of the population today is people who are more than 100 years old.  A recent article states that back in 1990 there were about 37,000 of them here in the U.S.  By 2008, the number had swelled to 84,000.  And estimates state that by 2040, there will be more than 500,000 “centenarians” living in the United States.

Living beyond 100 years – that’s an amazing accomplishment!  Because, as the article points out, people who live to 100 are not just people who made it to 80 and then tacked on an additional 20 years of physical and mental decline.  People who live to be 100 often avoid the chronic illnesses associated with age altogether.  No diabetes, no heart disease, no Alzheimer’s or Parkinson’s diseases. 

Another interesting thing that the article pointed out was that centenarians were, as a group, much happier about their financial situations that any other age group.  When asked, 95% of them responded that they had enough money to meet their needs, while 76% said that they even had enough to by the extras that make life even more enjoyable. 

The article then went on to highlight a surprising fact.  Of the centenarians surveyed, nearly 40% had no financial reserves whatsoever.  And another 37% had enough money for life’s necessities, but no “extra” money for more pleasurable purchases.  Yet, 95% felt they had all the money they needed to meet their needs.

As someone whose career is built around ensuring the financial futures of everyday people, I find that fact amazing.  And inspiring.  Because it points out something that I think is so important, but so simple, that it’s often overlooked. 

We choose how to feel about our circumstances.  Whether we have a lot or a little, we can always choose to be happy.  It may be easier to feel happy when you have a lot of money, but at the end of the day, we’re the ones who choose to put a smile on our faces when we get up in the morning. 

Let’s take a lesson from the valuable and inspirational members of our society.  Let’s do the things that we know we need to do to secure our own financial futures, and let’s choose to be happy.  And maybe we can be the inspiration for a future generation!

A recent article in The Wall Street Journal advised readers to “beware rule changes on Coverdells.”  Coverdells Education Savings Account, in case you’re not familiar with them, are investments that offer tax-free growth and withdrawals, as long as the money is use for qualified educational expenses.  They were once known as education IRAs, and sometimes they’re still referred to that way, although the money that goes into them is not deductible from taxable income. 

If you’re a parent who already owns a Coverdell, the article continued, you should be aware that there is good news – you can invest as much as $4,000 until April 15^th, since the money deposited before April 15^th counts towards the previous year’s (2009) limit.  And, there’s bad news.   Unless Congress extends the current benefit, starting next year withdrawals that are used to pay for expenses from kindergarten to 12^th grade will no longer be tax free.

That doesn’t mean that Coverdells are bad investments, of course.  They’re still a good way to save for and finance education in the United States.  Even with their limitations, such as the fact that beneficiaries must be under age 18 when the money is contributed, and that the money can’t be refunded to the person who started the account, they’re still better than doing nothing.

But there is one savings vehicle allows you to tax-free growth and withdrawals without those limitations.  Imagine being able to contribute what you wanted, when you wanted, without any limits.  Imagine being able to use the funds for any level of education, for any member of your family – even yourself!  Imagine the funds not all being needed, and the overage being returned to you, the person who created and funded the account.   Imagine even being able to pass the funds along to your heirs in the event of your death. 

By now you’ve probably figured out what savings vehicle I’m talking about.  It’s whole life insurance, of course.  And not only can it help you to save towards and fund your children’s educations.  You can use the money for any other purpose you choose as well.  Many types of life insurance policies have loan provisions that allow you not only have tax-free growth of your capital, but also to borrow tax free against the balance of your account.  For education, or for whatever other purpose you choose.

Life insurance is the only savings vehicle that I know of with so many uses – including the most important: making sure that in the event of your death, your family’s financial needs are completely taken care of.

Your retirement years are supposed to be the best – a reward for all of the years of hard work and sacrifice that you’ve put in.  You should be spending your days the way that you want to – seeing friends, enjoying your grandchildren, doing all the traveling that you put off while raising a family. 

But an article I read recently shows that for baby boomers, there’s a dramatic rise in mobility-limiting disabilities.  The upward trend for baby boomers is shocking, because for adults 65 and over, the number of disabilities is actually declining. 

The study on which the article was based found that 40 percent of the people age 50 to 64 reported having trouble with at least one of nine physical functions that were surveyed.  These are basic things we do every day, like bending, kneeling, climbing 10 steps, or walking a quarter of a mile.  In addition, more baby boomers are finding that they have to rely on special aids, like canes or wheelchairs, than ever before.

The researchers weren’t really clear on the causes of this alarming increase in mobility-related disabilities for baby boomers.   More and more people are reporting problems with back and neck pain, and there’s a national epidemic of obesity that I believe is part of the problem as well.  Heart disease, diabetes, nerve, muscle and joint problems can all be tied back to poor diets and lack of exercise.

But whatever the reasons may be, one thing is clear:  this trend will have consequences that extend far into the future.  And that’s because, in general, we don’t get healthier as we age.  If we’re having big problems earlier in life, it’s to be expected that those problems will only get worse with time.  There will be an even greater need for disability coverage and for long term care coverage in the years ahead. 

I once heard a speaker give the following advice:  do what you have to, as fast as you can, so that you can do what you want to as long as you can.  If it’s time to make some changes in your personal life, like eating better, or getting more exercise, the best day to begin is today.  And if your financial life needs some work, the best time to begin that is today, too. 

Do you have your own disability income insurance policy?  Do you own long term care insurance?  The need is there, and the best time to secure your future is today.