'Absolutely horrible': Here are the 3 big reasons Dave Ramsey hates whole life i...
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'Absolutely horrible': Here are the 3 big reasons Dave Ramsey hates whole life insurance — do this with your hard-earned retirement savings instead
When it comes to whole life insurance, “It’s not a mild dislike,” said Dave Ramsey in a recent episode of “The Ramsey Show,” where he’s offered financial advice since 1992. “I hate it.”
Why the disdain for whole life when so many Americans invest in it? Half have some form of life insurance, according to Annuity.org.
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The idea is two-fold: First, having life insurance allows people to live with a sense of financial security. And second, when a policyholder passes away, the beneficiary (or beneficiaries) receive the funds from whole life insurance investments.
Yet when counting the reasons for his hate, Ramsey has three. And just like an overzealous insurance salesman, they’re pretty hard to ignore.
1. Fees, fees, fees
For every $100 you invest in whole life insurance, the first $5 goes to purchase the insurance itself; the other $95 goes to the cash value buildup from your investment. Yes, but … for about the first three years, your money goes to fees alone.
Someone is making out, and it’s not your beneficiary.
“It’s front-loaded as an investment,” Ramsey said. “That isn’t necessarily evil in and of itself but is frowned upon in the financial investment world by and large.”
2. Lousy returns
Ok, but you have it your whole life, right? Well, it doesn’t get much better after the first three years. The average rate of return after those “three years of zeroes” will be about 1.2% on that $95.
“Let’s be generous and say it’s double that,” Ramsey said. “It’s still not a good long-term investment. If I could get 2.4% on my money market I’d be dancing a jig, but not on my long-term investments.” Those, he noted, need to be north of 10% to beat inflation and taxes.
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