BeamaLife Blog

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!