Dave ramsey

[Mike D]

The one listed above sounds pretty dumb to me. Don't invest in your future retirement until your home is paid off? You should be investing as much as you can into your future retirement for as long as you possibly can. If you can start the day you graduate college like I did you should be in pretty good shape when retirement comes around. Can you imagine how much money you would have to throw into your retirement account to get the same amount at age 65 if you waited (lets say 20 yrs) for your mortgage to be paid off before you started puting money into retirement. Compounding interest is a magnificant thing, even if your only puting in a smaller amount during the time you have a mortgage.

"Buy Term, Invest the difference" - Less than 2% of term life insurance policies are ever paid a death benefit. The death benefit on a life insurance policy is TAX FREE! Whole life insurance is THE ONLY insurance policy you can purchase that you can sit back, relax, and know that when you die the money you put into it is going to get paid back many, many times over to your family or beneficiery no matter when you die. (next week or when you are 90 yrs. old). That being said, there is nothing wrong with Term Life Insurance, It helps families out of Financially tough times during times in their lives when the last thing they need is financially tough times, I just don't agree with Dave Ramsey on his Whole Life Hatred, There is a place for both whole life and term life insurance depending on a families needs. You can't blanket statement every family in the world and say none of them need to purchase whole life insurance. To me that is doing your customers, followers, listeners a GREAT injustice.

There are two of the ideas he has that I think are "DUMB" - Just my opinion. I also think some of his debt reductions stratagies are genious! and commend him for single handedly changing many families lives around the nation. Other than a few of his investment stratagies, I think the guy is great. If I had debt problems I would pay the money to join up that is for sure.

He doesn't say don't invest until your house is paid for. If you know anything about his baby steps, step 4, 5, and 6 are done simultaneously.

Step 4 is 15% into retirement
Step 5 is fund kids college fund
Step 6 is pay off the mortgage early

I don't truly know enough about whole life to form an opinion one way or another but if what he says is true, I can't see them as a good thing.

[1369]

Here's Dave's explanation on Whole Life policies (at least what I could find via the Googe on short notice)

Link

Why does Dave not like whole life insurance?

Dear Dave,

I’ve been an advocate of whole life insurance policies and have had one for several years, but I’ve read that you think these are a bad deal compared to term insurance.

I’ve been viewing my whole life policy as death insurance and a savings plan all rolled into one product. I’ve borrowed money from it in the past at a low interest rate. I just don’t feel as if I’m throwing my money away. I’ve got about $3,000 cash value in it right now and my beneficiary would get $50,000 if I die. With a term insurance policy, I don’t have the option of borrowing against it and there is no return on my money except when I die.

Reggie I
Flint, Mich.

Dear Reggie,

Have you noticed that your car insurance doesn’t have a savings plan built into it? You get no money from that insurance unless you wreck your car. Your health insurance doesn’t have cash value plan in it either. You get no money from that insurance policy unless you get sick.

Insurance, in its purest form, is transferring to someone else the risk that you cannot afford to take. I cannot afford to take the risk that I’ll need a triple bypass surgery that will cost $50,000-$100,000. Therefore, I carry health insurance and the risk of incurring those costs is transferred to the health insurer. Whole life policies, as you said, combine an insurance policy with a savings program.

You and I know that insurance companies, no matter what kind of insurance they provide, are in business to make money. If they’re offering you both a death policy and a savings program, you’re paying a fee for both products.

Recently, we conducted a study that I’ll use as an example. We asked eight of the top insurance companies for their best whole life rates. If a 30-year-old pays $100 a month in whole life insurance policy premiums, he could buy a policy worth about $125,000, on average. Some of the $100 goes toward the insurance policy and some of it funds a savings account. Then we looked at how much that same 30-year-old could buy if he got a 20-year level term insurance policy worth $125,000. The cost is about $8 a month. So, $92 a month funds the savings plan in the whole life policy. Studies tell us that whole life policies pay between 1.2% and 2.3% interest on the savings after a couple of years. The first year or two they actually pay no interest. Keep in mind, inflation averages 4%, so you’re losing money every year if you only average 2% interest.

There’s another problem with whole life insurance, in addition to paying ten times more for it than term insurance. You’ve got $3,000 cash value in the savings portion of your policy. If you die tomorrow, they’ll pay your beneficiary the insured amount, but the insurance company gets to keep your $3,000 savings.

So, your investment program for your $92 a month is zero return for the first few years, 1%-2% return after that – which doesn’t keep up with inflation – and when you die, they keep your money. You could invest that $92 a month in a good mutual fund and average a 12% return – which is what the insurance company is doing. They give you 1%-2% and keep the other 10%.

There is a valid concern with term insurance – that it will get more expensive as you age. If your 20-year level term policy comes up for renewal when you’re 50, it’s going to be pretty expensive. That is why I also push people to get out of debt and invest in a good Roth IRA. If you follow that plan, you can have $750,000 saved up in your Roth IRA by the time your term renewal comes up. With that much money set aside, zero debt and a paid-for house, your family is secure because you've become self-insured.

[Snakelover]

Good find, 1369. Combining investment and insurance is a smoke and mirrors game.

[JHT]

He absolutely HATES AMEX. I think it's more because of their collection practices than anything. But, my question would be, why use an AMEX if you are planning on paying it off anyway?



Hahaha! I can relate. All the time I am saying no, the kids are saying YES!

Collection practices? You buy stuff and pay it off next month.
Kinda like utilities. Like all of his other points, its a pretty simple concept.
The only way you have a problem is if you can't pay it off. The same with any card without the interest.


Not bashing here, but what does he hate about them specifically?

[Codie]

Here's Dave's explanation on Whole Life policies (at least what I could find via the Googe on short notice)

Link

In a way, he is saying that buying a whole life policy is not a good form of investment. I AGREE, If you want to invest money go put it in a mutual fund or some other form of investment, Whole Life insurance should be used for what it is, Insurance, not an investment. He is wrong when he says the cash value portion of the policy is not payable to the benefeiciery. The death benefit payable to the beneficiery consist of the original amount of insurance purchased, dividends & cash value that the policy has accrued. So you might pay for $100,000 whole life policy, but if you live for 50 more years, the check your benificery gets will be substantially higher than the amount of insurance you paid for. Under his last explanation, he is not taking into account that when (bob) turns 55 and his term insurance has ran out and he needs to purchase more he still has to prove insurability to get that new term policy. If he has develeoped any health issues over the last 30 years during his term policy he isn't going to get any more life insurance and his family is going to be stuck without ANY life insurance. Even if he was debt free there is a funeral and estate taxes to be paid. Thanks for posting that 1369

[Howard]

I write a lot of life insurance and understand both sides of the coin. The problem is people are not disciplined enough to buy term and then invest the difference. Very few do it and then they are the old men and old woman that I end up writing a "burial" policy on that had term all their life and now they have nothing.

If done right, term and invest would be ok, but people are not going to do that.

[Talon]

Dave fan here! going to the Entreleadership tomorrow and the Total money make over on Saturday! I'll be looking for TBH stickers in the parking lot!!!!

[Will 74]

Congratulations to everyone paying off debt!!

This is a great thread. I listen to Dave on the radio when I can. I have not read the books, but want to. We are blessed to be debt free except for the house.We put 15% - 20% of my income in Roth IRA's and a Roth 401K.

My next step is paying down on the house. Problem there is we want to move within the next 5 years.

I agree with him about almost everything except the credit cards. We pay ours off every month. I agree we may spend less with cash only, but credit cards are a convenience.

I have level term life insurance on myself and the wife. Whole life pays great commisions, that is why the insurance guys push it. My mother is a farmers agent. The agents are pushed to sell whole life.

Codie, do you sell insurance?

[Michael]

I write a lot of life insurance and understand both sides of the coin. The problem is people are not disciplined enough to buy term and then invest the difference. Very few do it and then they are the old men and old woman that I end up writing a "burial" policy on that had term all their life and now they have nothing.

If done right, term and invest would be ok, but people are not going to do that.

IMO, that proves Dave is right with his philosophy. For anybody that follows his plan, whole life doesn't make sense. Why do we have life insurance? I have it now as income replacement, to pay for a funeral, to pay off my mortgage and other debts, cover education for my kids, so that my wife doesn't have to remarry until she WANTS TO (as opposed to HAS TO to provide for the family), in the event of my death.

As I grow older, if I follow Dave's plan, debt is reduced, mortgage is paid off, kids graduate from college and savings/wealth is built so that there is little or no need for income replacement. The longer I live, the less life insurance my family REQUIRES.

Therefore, for those that follow Dave's plan, he is absolutely right in suggesting that they "buy term and save". His ENTIRE philosophy is built on discipline. You and I both know that not everybody has the discipline to buy term and save, and I'm sure Dave knows that, too, but also realizes that those people also lack the discipline to follow the rest of his plan. I contend he ain't talking to those people!

Michael

[trhunter]

If anyone knows what radio station does he come on in the Houston area and what time of day is it, I have never listened to him, but glad that I don't have a ton of debt to pay off, but would like to listen and get more informed.
Thanks.

[Will 74]

If anyone knows what radio station does he come on in the Houston area and what time of day is it, I have never listened to him, but glad that I don't have a ton of debt to pay off, but would like to listen and get more informed.
Thanks.

950 am From 1-3 PM.

[Mike D]

Collection practices? You buy stuff and pay it off next month.
Kinda like utilities. Like all of his other points, its a pretty simple concept.
The only way you have a problem is if you can't pay it off. The same with any card without the interest.


Not bashing here, but what does he hate about them specifically?

I can't answer your question as to specifics. But the difference is that he helps and counsels people that ARE in trouble and has to help them deal with them and he says they are the absolute worst to deal with. Your scenario is for those people who do have the discipline to the right thing.

Hey if it works for you, then great. I choose not to participate because I have been one of those in the past that wasn't disciplined enough to do it "right".

I personally see no reason to take the risk any longer.

[Codie]

Congratulations to everyone paying off debt!!

This is a great thread. I listen to Dave on the radio when I can. I have not read the books, but want to. We are blessed to be debt free except for the house.We put 15% - 20% of my income in Roth IRA's and a Roth 401K.

My next step is paying down on the house. Problem there is we want to move within the next 5 years.

I agree with him about almost everything except the credit cards. We pay ours off every month. I agree we may spend less with cash only, but credit cards are a convenience.

I have level term life insurance on myself and the wife. Whole life pays great commisions, that is why the insurance guys push it. My mother is a farmers agent. The agents are pushed to sell whole life.

Codie, do you sell insurance?

Sure do, and I in NO way push Whole life insurance or term either one. If you are pushing one certain type of policy there is a reason behind it (i.e. commisions - as you have stated above) Every family has different needs. Some of them have a need for whole life insurance and some of them don't. My point was that Dave Ramsey does not seem to take that into consideration - he seems to use a blanket statement and say that every person in the world is wasting their money if they purchase whole life insurance and it is just not true.

[JHT]

I can't answer your question as to specifics. But the difference is that he helps and counsels people that ARE in trouble and has to help them deal with them and he says they are the absolute worst to deal with. Your scenario is for those people who do have the discipline to the right thing.

Hey if it works for you, then great. I choose not to participate because I have been one of those in the past that wasn't disciplined enough to do it "right".

I personally see no reason to take the risk any longer.

Ok. Thats cool Mike. Kinda like AA telling members its a very bad idea to hang out in bars, why give yourself the itch to scratch.

[Codie]

IMO, that proves Dave is right with his philosophy. For anybody that follows his plan, whole life doesn't make sense. Why do we have life insurance? I have it now as income replacement, to pay for a funeral, to pay off my mortgage and other debts, cover education for my kids, so that my wife doesn't have to remarry until she WANTS TO (as opposed to HAS TO to provide for the family), in the event of my death.

As I grow older, if I follow Dave's plan, debt is reduced, mortgage is paid off, kids graduate from college and savings/wealth is built so that there is little or no need for income replacement. The longer I live, the less life insurance my family REQUIRES.

Therefore, for those that follow Dave's plan, he is absolutely right in suggesting that they "buy term and save". His ENTIRE philosophy is built on discipline. You and I both know that not everybody has the discipline to buy term and save, and I'm sure Dave knows that, too, but also realizes that those people also lack the discipline to follow the rest of his plan. I contend he ain't talking to those people!

Michael

Good post Michael - unfortunatley the families that pay everything off and then stay satisfied with what they have, (house, cars, boat, etc.etc. ) even at the point in their life that they are empty nesters are very small. In the situation you described, you are correct, the need for life insurance goes down as you get older, but there are plenty of people whos life insurance needs skyrocket once their in the situation of paying off debt, because they sell it and buy something bigger and better instead. In those situations, if they are now 55 and their health has deteriorated somewhat over the years and their term life is running out, they are out of luck with getting life insurance to cover those additional needs. It does not take much at all to be declined for life insurance or charged a rediculously inflated rate due to health conditions.(that is the main reason it is smart to get it while you are as young as possible) Every situation is different and every family will have different life insurance needs. If what Dave Ramsey actually says is that everybody that follows his plan only needs to purchase term and buy the rest, then I buy that! But he can't say (factually) that every family in America needs only term insurance.