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Financial Guru Dave Ramsey FURIOUS After Hearing THIS Investing Approach
Money Masters
Kenny
November 02, 2023
NEWS
Financial Guru Dave Ramsey FURIOUS After Hearing THIS Investing Approach
Dave Ramsey was NOT happy when a caller mentioned whole life insurance.
Dave Ramsey Couldn’t Believe What He Just Heard
What’s up!
We are back this week with the latest talk in the world of investing. We’re going to look into Dave Ramsey’s views on whole life insurance and explore some alternative investment methods.
Whole life insurance is an insurance policy that assures continuous coverage for the insured person's entire lifetime. Coverage is granted only when the mandatory premiums are paid or until the policy reaches its maturity date.
SUMMARY
Renowned financial guru Dave Ramsey highlights the drawbacks of whole life insurance, emphasizing that it can diminish your investment potential. He goes on to state that insurers keep your money upon your death.
We present alternative options, such as:
1. Term life insurance
2. 401(k) plans with employer matching
3. Roth IRAs
The three investment methods are proven to be efficient ways to secure your retirement and financial future. Dave Ramsey was on to something with his distaste for whole life insurance
In conclusion, he suggests there is significant evidence against putting all your savings into whole life insurance. He even suggests that storing money in a fruit jar may be a better option, hilarious!
BREAKDOWN
The fee structures associated with whole life insurance can severely limit the power of your money.
You are unable to capitalize on the greatest feature of traditional investing, compound interest. Since its inception in 1957, the S&P 500 has provided an average annual return of 11.8%.
An $1,000 investment compounded annually at that rate will become $28,396 after 30 years. That is over 28x of the amount you started with!
You After Multiplying Your Money 28x
Without compound interest, your 30-year investment would only be worth $4,540. That is still a 4x return, but nowhere near the 28x return we would have with compound interest. We can’t afford to leave money on the table like that!
Insurance companies may refuse to give you back any of your money if you can’t keep up with the premium payments.
We have more than enough bills to worry about paying.
According to The Motley Fool, the average American household pays a total of $6,081 in bills every month. This is a whopping 80.4 percent of the average income of $83,195.
The three most common expenses are:
Housing- 33% of total spending, 29% of income
Transportation- 17% of total spending, 15% of income
Food- 13% of total spending, 11% of income
To try to and get money, you must submit a claim with sufficient evidence and reasoning or it will be denied. The insurance provider might “explain” their rejection by asserting that you are perfectly capable of making payments or did not need the compensation in the first place.
When a policy holder passes, the insurer retains the accumulated cash value of the policy.
In essence, they absorb this cash, leaving the beneficiaries with only a "death benefit." The cash value can be utilized by the policyholder only during their lifetime.
Talk about “coverage,” or lack thereof! Fortunately, there are more effective ways to allocate your retirement funds.
Surprise, the money’s gone!
INVESTMENT ALTERNATIVES
Alternative One: Term Life Insurance
As suggested by Ramsey, term life insurance is a much more attractive option compared to whole life insurance. Term life insurance provides coverage for a specified period (10, 15, or 20 years), ensuring that a payout is made if the insured individual passes away during that term.
Term life insurance is significantly cheaper than whole life insurance due to its limited timeframe. It exclusively offers a death benefit, and the premiums are determined by your age and health status.
It's important to note that you cannot invest the premiums elsewhere, and if the term expires while you are still alive, you won't receive any money back. However, you can consider combining term insurance with investments that can grow alongside it.
Alternative Two: 401(k)
A 401(k) serves as another financial safety net in case of your passing. However, a significant issue is that many Americans, including freelancers, do not have a 401(k).
The good news for full-time employees is that their employers may match their 401(k) contributions, usually up to 6% of their salary. This effectively means free money for your retirement, not many can complain about that.
Financial advisors can assist in wisely investing your retirement funds and remove some of the guesswork for you. Furthermore, you receive a tax break for contributing to your 401(k), as taxes are deferred until you withdraw the funds, typically during retirement or when passing it on to a beneficiary.
Alternative Three: Roth IRA
One appealing feature of any individual retirement account (IRA) is that you can open one even if you already have a 401(k). In the case of a Roth IRA, taxes are paid upfront. This tax arrangement works to your advantage when you make withdrawals, as you've already settled the tax liability. Essentially, what you withdraw is what you keep (unless, of course, you decide to purchase some whole life insurance, no thanks).
Similar to a 401(k), you can invest in stocks or index funds linked to the market to grow your retirement savings. You can open a Roth IRA at your convenience and hold it for as long as you desire. Withdrawals are typically allowed after reaching age 59 and after a five-year holding period.
Turn a negative into a positive!
TAKEHOME MESSAGE
It makes little sense to invest your entire nest egg in whole life insurance
You have numerous options available for securing your financial future and providing for your loved ones. While big insurance companies may promote it, we have to zoom out and see whole life insurance for what it actually is.
Although many individuals can have differing views on experts like Dave Ramsey, it's wiser to consider alternative approaches. As Ramsey hilariously put it, you might as well store your money in a fruit jar — at least it will still be there when you pass away.
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