Why Is Dave Ramsey Against Whole Life Insurance?

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   Ted Ratliff

   Owner, SFS Associates,

   Dave Ramsey's concept is that you should buy term and invest the difference.  Since term insurance is less expensive initially, investing the difference in cost between term insurance and whole life insurance you will receive a greater return.  In principle and theory he is right.  In actual practice, statistics show that people buy term with this in mind but do not follow through on the investment portion.  The result is that people are left with no insurance in their later years, because term insurance premiums increase in later years and become unaffordable.  Often they end up with less savings than they would have had if they had purchased whole life.  When you consider the tax friendliness of whole life, probate avoidance, and other factors Whole Life often in reality comes out on top.  Dave Ramsey's concept is not new, it has been around since A.L. Williams in the early 1980's.  Unless a person is extremely disciplined and has enough liquid cash flow, the concept of buy term and invest the difference has historically not worked for most people.  Life happens, emergencies come up, expenses rise and the investment part of the plan is put on the back burner.  I know some of my colleagues will disagree with me.  They point to numbers on illustrations that look good in theory.  I am not saying the concept won't work.  I am pointing out the reality that unless a person truly follows through on the plan, historically it hasn't for many.  I see too many people end up with no insurance in their later years when they need it most.  You should have at least a solid base of Whole Life.  Life Insurance is not a good investment in fact it is not an investment.  It is a good semi-compulsory way to save money for a later date while at the same time providing an immediate estate should you die too soon.

   Answered on June 17, 2013

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