Dave Ramsey is an American financial expert who has written many best-selling books about financial planning. Additionally, he has hosted several radio programs giving financial advice and discussing important financial topics. He has founded his own financial consultancy group and is known for his helpful, accessible financial advice. One of the topics that Dave Ramsey discusses is life insurance, and you may be wondering what type of life insurance he recommends. Dave Ramsey’s website is daveramsey.com. Here’s an overview of Dave Ramsey’s advice and views on life insurance.
Dave Ramsey Insurance Recommendations – Stick to Term Life Insurance
Dave Ramsey’s recommendation is always to purchase term life insurance instead of whole life or universal life insurance. He finds term life insurance to be much better value for money. Many people use whole or universal life insurance because of their cash value components, which allow you to save and invest part of the money you spend. However, the returns on these accounts are usually not as high as they would be on other types of investment accounts, such as an IRA. Premiums for whole and universal life insurance are also usually much higher than premiums for term life insurance.
There are many reasons why Dave Ramsey likes term life insurance. The biggest reason is that it is simple and affordable for most families. You can opt for a term that makes sense for you given any debts and any other financial responsibilities you have. In many cases, you will only need life insurance to cover things like your mortgage or your student loans until they are paid off, or to support your family until your kids grow up. In this case, term life insurance makes the most sense, because it gives you affordable, practical coverage. Term life insurance also allows you to pick the death benefit that makes the most sense for you, depending on your financial situation and what kind of coverage you need.
Dave Ramsey Supports Zander Life Insurance
It is important to recognize that Dave Ramsey does not sell life insurance himself. Dave Ramsey is compensated by Zander Life Insurance, an online life insurance brokerage that sells term life insurance along with other insurance products such as long term care and auto insurance. Dave Ramsey is a paid spokesperson for the company.
While Dave Ramsey’s tips to stick to term life insurance make a lot of financial sense for a broad section of people, it does not make sense for everyone (like he would have you believe). Part of the reason why he only recommends term life insurance is because whole life insurance is not really sold online the way that term life is. Zander insurance does not sell whole life, for instance, so Dave Ramsey gets paid to push term life insurance in-part because it is what his sponsors sell.
Regardless, Zander Life Insurance is a good brokerage that will find good life insurance rates for its clients. However, they are not as good as Life Ant at getting to know a client and their specific needs and recommending the right product. Zander is more likely to push a very standard policy to potential policyholders.
Dave Ramsey’s Term Life Insurance Buying Tips
Dave Ramsey’s website does give good advice. As he says, there are many things to keep in mind when buying term life insurance. Dave Ramsey gives plenty of tips to help you get the coverage you need, when you need it, while still fitting into your budget. Here are some of Dave Ramsey’s best tips for buying term life insurance.
- Buy enough to replace your income as well as cover your debts. Many people don’t think about the money that their family would need to support themselves after their family is gone. Dave recommends buying about 10 to 12 times your yearly income in death benefit coverage. You’ll not only need to replace your income but also make sure that your loved ones have extra financial security in such a volatile time. You’ll also need to make sure that your policy covers your funeral expenses and pays for any outstanding debts or financial responsibilities you may have.
- Make sure your term is long enough. Give yourself a few years extra just to make sure your debts are paid off and your children are financially set up to live on their own before your life
insurance expires. It can be difficult to get another plan once you reach a certain advanced age, so make sure your plan gives you enough time to get financially stable before it expires. - Review your life insurance policy periodically to make sure it still suits your needs. No matter how effective you are at planning for the future, there are always going to be unexpected life events that change your circumstances. For example, you might get divorced or remarried, or your children might need more support than you originally planned. You should review your beneficiaries often and adjust them as needed. On the flip side, you might pay off your debts early or find that your financial responsibilities lessen as you get older. Reviewing your life insurance policy will ensure that you aren’t paying more than necessary for your coverage.
- Be cautious when purchasing riders. When you go to purchase a life insurance policy, the insurance agent will likely try to sell you on riders, which can provide extra coverage, but can also make your policy much more expensive. In most cases, you don’t need these riders (although there are some exceptions where they can be very helpful). Keep in mind that many insurance agents make a commission when they sell a policy, and they are personally motivated to sell as many expensive policies as possible. Before adding any extra clauses to your policy, take an in-depth look at whether or not you really need them. If you can, work with an independent insurance agent, or do your shopping on your own, to ensure that you aren’t being given biased information.
- Get coverage for your spouse if you have one. Even if your partner stays at home with your children, it’s still important that they have some life insurance coverage should something happen. Even if they are not contributing income, you will still need the extra funds to pay for childcare and deal with any other issues that arise during this difficult transition for your family. If your spouse or partner does contribute income, then you should be even more careful to make sure you are both covered. However, you should make sure you have two separate term life insurance policies for both people. There are many companies that offer joint or survivorship life insurance, but they tend to only make sense for the very wealthy. Survivorship policies in particular are designed mostly to keep tax benefits in place once one spouse dies, as opposed to supporting your family through the loss of a loved one.
Pros and Cons of Dave Ramsey’s Life Insurance Recommendations
The recommendations espoused by Dave Ramsey are not generally wrong. Here is how we see his advice, and what is right with it and what is wrong with it.
Pros:
- Term life insurance is by far the least expensive type of life insurance in the short run.
- Clients can save the difference between term and whole life, and invest it in the stock market and get a higher return than whole life.
- Getting enough life insurance to pay off all debts takes care of a good amount of stress for a spouse if the other spouse passes away.
Cons
- Term life coverage is not permanent. After it expires, it may be impossible for the client to obtain further coverage. This could leave someone without coverage because they were saving money in the short run and choosing term over whole life.
- Whole life insurance is actually less expensive in the long run because it pays dividends. The dividends will offset the premium and eventually grow larger than the premium in most cases.
- Whole life insurance is much safer and less volatile than the stock market. Investing in stocks leads clients open to great risk of big losses. Whole life insurance’s return is steady and tax-advantaged. Whole life insurance can be surrendered for its cash value before death to access a portion of the value.
- Term does not fit all client’s needs and applications. Whole life insurance can be used for purposes such as estate planning, donating to charity, funding a trust, and investing.
- Dave Ramsey gets paid to sponsor term insurance. He is more of a media personality than a true financial advisor.
Final Word – Dave Ramsey’s Life Insurance Recommendation
Dave Ramsey makes a great case for term life insurance as the best option for the average American. Term life insurance policies allow you to get the coverage you need at reasonable prices. They are also very flexible, so you can adjust them as needed to fit your unique financial needs. Most insurance companies offer term life insurance, so it’s very easy to find an appropriate policy in your area. You can also easily compare quotes between companies since term life insurance is a straightforward life insurance product compared to permanent life insurance.
Sources:
https://www.daveramsey.com/blog/5-term-life-insurance-mistakes
https://www.daveramsey.com/blog/types-of-life-insurance
