Dave Ramsey is Wrong About Life Insurance (Math Proves It)

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[aplz]

He isn't saying that 30 + 20 = 57. He is saying that when you are older (eg 57) and no longer require life insurance to protect your love ones, you should drop the insurance. Thus a whole life guarantee is not necessary. That is all he's saying.

[WealthWithoutWallStreet]

Here's a link to part 2. This covers the comparisons of whole life insurance vs Dave's numbers. You might want to watch this one.

[saintmatthew]

The only real argument I can see on the upside for whole life is that if you structure the policy correctly it is great for use as a tax shelter. Also it is unable to be seized if you were to get into any civil suit or file bankruptcy. So using it as a shelter in many different ways is the best benefit of whole life in my eyes.

[miniDrew]

Well this really proves Dave Ramsey's point. Thanks.

[PublishWithEmissary]

I can see the wisdom of avoiding cash value if you’re following Dave’s advice to get out of debt or you’re broke. But having followed it and been through his course twice, I don’t think it gets you much beyond “debt-free and cash poor.” Our portfolios have grown well over 15 years, but they’re nowhere near what the hype said they’re supposed to be by now.

[bradleyericbardeau]

I don't know much about how things work in the US, but a participating whole life policy usualy works better than investing in the non registerd market.

[SpasticRocks]

Few questions to ask yourself if you are the owner of a whole life policy.

1. Why does it take 2-3 to finally start seeing your cash value grow? It's 0 until it begins to grow, yet you're sending in premium payments?!
2. Why is it that we have to borrow our own money at 4-6% interest?
3. Why is it that the insurer keeps the cash value after the insured passes away?

Seems like a bad deal.

[gabriellecaucutt]

I'll admit it took me several careful readings of Nelson Nash's book and a lot of thinking, but I do not regret pulling my money out from my IRA and investing in a WL mutual policy. I wanted to see my money work, and have flexibility in decision making with regards to my retirement. I didn't ever think I knew what was happening in my IRA...sort of like throwing money up in the air and hoping it would come down eventually. And with regards to a ROTH...sure, it can't be taxed under present laws. How do I know that will be the case when I retire? I didn't make those rules, and I've noticed politicians make a habit of changing the rules. I've also noticed some retired folks living extremely frugally, so they don't outlive their IRAs, from which they are required by law to take from yearly...pulling from the principle. That also seems disconcerting. Regardless of opinion on WL or no, it pays to research the laws, read the fine print, and educate yourself.

[matthewhammond]

I like Dave Ramsey for a lot of what he offers with regard to advice on paying off consumer debt with the snowball method, etc. However, it is simply irresponsible for DR to make a blanket statement about how all Whole Life Insurance is useless and anyone that utilizes it is "stupid." I literally just watched a video of a guy calling in to Dave's show to ask Dave how he should get out of his Whole Life Policy that he has had for 10 years paying $1000 per month without "losing his shirt." Dave said that if you're in a whole life policy, then you "have already lost your shirt." The conversation continues, and the guy literally says a couple minutes later that his cash value is much more than the $120, 000 that he put in so far...I don't claim to be an expert on the subject, but that sounds to me like the opposite of "losing your shirt..." Maybe I'm wrong...

[austinpowell]

Higher compounding frequency than annually, reinvesting the earnings, don’t realize gains until retirement, there are no “management fees, ” on buying mutual/index funds

[rickgillespie]

I bought a universal life policy 7 years ago (age57) for $100, 000 death benefit and a guaranteed return of 4% plus dividends. I pay $6400 per year for 10 years and then it is paid up. The agent at the time said it would go up in value to %160000 by the time it was paid up. My new agent (same company) tried to sell me another one and said in 5 years it would be worth 201, 300, and 314, 000 by 5 years. I showed him my old policy and he said "well, the expenses are front loaded so it doesn't do well in the first years". That was when I said no. This is why I would trust Dave Ramsey.

[Mypplz]

I don't get your calculations of Dave's $700K vs your $290, 662 after paying taxes. Isn't Dave's point that you invest in a ROTH with after-tax money so you wouldn't have to pay taxes on your $700K you made?

[DustinBrackett]

If you do not invest or plan to self insure yourself you need whole life insurance.

[astroman]

Simple question, what happens to the cash value when the person dies?

[ColeB-jymh]

This video I agree is very miss leading... Dave didn’t say in 20 years you would have 700, 000 he said when you turn 57 you would have 700, 000 so that’s 27 years, obviously not 20 years.... the calculations were done wrong in the video

So it’s not 17.8% it’s 12% for 27 years will give you 700, 000.... very small comprehensive mistake, but that’s a big deal!!! That’s the whole reason this video was made (off a comprehensive mistake)

[DD-ozee]

Honestly, I trust Dave Ramsey more than this dude.

[fugerep]

There’s no way in the real world that $93 per month for 30 years would ever equal what DR claims. I know this for a fact because I have maxed my 401k and Roth for 17 years straight and have followed the SP 500. Not even close. It takes hundreds of thousands in contributions to get to $700k account value. I would have been better off discovering IBC at age 23 and dumping my money into a specially designed dividend paying whole life policy...I’d be crushing it even more than I am. Alas better late than ever fellas!

[chonarop]

- Tax benefit argument is not valid; IRA and 401k would do about the same.
- I agree with you that Dave's 12% return is quite unreal for any mutual fund accessible by average Joe. I'd think 6% would be a better number for mutual fund route. That'd would make the total $value at $65, 655 after 20 years of monthly contribution and 7 more years to grow.

Now what would be the cash value for the policy at that point in time?

[ronnieleathers]

Very misleading. The article clearly states IF you follow the baby steps. THEN you get this result. BS4 is invest 15% of your income. So assume the guy makes 30k a year, he should be investing $375 a month. If you do that for 27 years at 12% (a bit optimistic but what Dave uses) what do you get? More than 700k....

[orion]

If you see this, I have a question for you. If I bought a whole life policy of face value, $10, 000 that builds cash value, and say it builds a CV of $250, 000. If I die before the policy matures, will my beneficiaries get the $250, 000? Or will they get the face value. Also, do I have to pay a fee if I borrow some of the cash value? I hope you see this because I'd really like an answer.