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Comments about ‘Dave Ramsey says: Don't leave an estate with life insurance’

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Published: Monday, July 28 2014 7:17 p.m. MDT

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Diligent Dave
Logan, UT

Yes, generally speaking, life insurance shouldn't be used to "leave an estate". But, depending upon the size of the premium this woman is paying, and will yet have to pay, her strategy may be smarter than Dave Ramsey's advice. In all likelihood, her premium is probably quite high. If so, and depending on her personal perceived prospects on how long she may yet live, yes, following David's advice may be smarter. But, I can see where, unless it happens within a year of the initial purchase of a life insurance policy (because then, the insurance company would just return the premiums paid, instead of honoring the policy, if the person dies), buying the life insurance policy, if the person on whose life the policy rests, if they anticipate they might die between maybe 12 months and 5-years or so, paying the life insurance premium might be the smarter investment choice for someone wanting to leave an estate.

MAYHEM MIKE
Salt Lake City, UT

@Diligent Dave: I couldn't have said it better! Once again, Dave Ramsey looks at the issue from one (biased) view, only. His view: insurance is a rip-off. His view: the woman will definitely live long enough to invest. Doe he have a crystal ball to predict when she will die? As far as Ramsey's "infallibility," he once told a woman on his radio show she didnt' need to get a living trust to plan her estate, but a simple will. "The trust will cost you $3000; the will, next to nothing!" Wrong, again, Dave! Many lawyers charge far less for trusts. He also forgot to mention to her was that he sells will forms on his web site and that the will needs to be probated to be valid at your death. (In some states, like California, probate can cost thousands of dollars in legal fees.) It would be great fun to debate Ramsey. Finally, no, I don't sell life insurance; yes, I am an estate planning attorney.

TaxMan
ARLINGTON, VA

Dave's assumption that she will have $250,000 saved up after 13 years of investing at $600 per month assumes a compound annualized rate of return of 13.4%. That's a pretty aggressive assumption to be able to assume those types of returns will be obtained consistently over a sustained 13-year period. So - she's making a bet on (1) living past 84 and getting a very high return over the course of that time and (2) dying before 84 or having a lower-than expected return on the investment. Seems like there should be a better alternative based on her numbers.

That being said, I agree with the general premise that whole-life policies are often over-priced and not worth the cost and your funds can be better employed elsewhere (assuming that she doesn't know something about her health that would suggest she might go sooner rather than later).

T2
SLC, UT

Once again, Mr. Ramsey shows his advertising bias regarding proper Estate and Tax Planning. While the exact product that the mother is taking might not be the most appropriate vehicle, some type of life insurance is usually the safest way to leave a legacy. In a previous article posted by Mr. Ramsey in the Desnews, he gave a reader the advice to "not gamble". Well, that's exactly what investing in mutual funds amounts to...gambling. Why would you want your mother to put her money at risk in the stock market? Only Wall Street would. Not very smart. However, it does make sense that Mr. Ramsey gives this advice since his two biggest advertisers are mutual fund and Term Life companies.

carman
Wasatch Front, UT

Life insurance should be used to close the gap between potential cash flow needs of a dependent (the beneficiary of the policy), and the income they will have available without the policy. Dave Ramsey is spot on in principle: Life insurance is not an investment, but insurance. And generally speaking, it should be used that way. I would never count on insurance as a good vehicle to build wealth. The rich certainly don't engage in this silly kind of thinking. Insurance is just a tool, used for a specific purpose. Don't let insurance salespeople talk you into 1) buying more than you need, and 2) buying it for the wrong reason.

kevo
Saratoga Springs, UT

Isn't life insurance benefit received TAX-FREE? Hard to find an investment acct that will allow you to grow your money tax-free and take it out tax free. How much of that $250k will her beneficiaries be able to keep AFTER taxes. Keep the life insurance policy, dude. And no, I'm not a life insurance guy/salesman/whatever.

mufasta
American Fork, UT

Based on the mortality tables, Dave is absolutely wrong in this case. His assumptions regarding the accrual of $250,000 unreasonable as they assume appreciation of over 13% annually. Life insurance is one tool to be used in sound financial planning but it is not the toolbox. Each situation is unique depending on income, life expectancy, lifestyle, discipline, etc. In this situation, Dave is incorrect.

RSL*
Why, AZ

I worked as an Insurance Adjuster. Insurance is always priced to make more off of you than what you will gain from it. Very few people beat the insurance company at that game. You might think it is a good deal but there are so many loopholes that they will find a way to decline coverage or limit the amount refunded. Young people are the worst type of people to ever get insurance. That is where insurance makes the most amount of money.

ravonal
Syracuse, UT

Dave is a lecturer, author, and financial generalist whose lifestyle depends on seminars, DVD purchases, and book sales. He claims to be CPA but it is known that he formally worked for Primemerica, who owned the AL Williams organization in the past. Dave needs and wants a lightning rod to engage his minions in a turbocharged frenzy in order to distract them from the real issues. He often shoots from the hip when it comes to financial products presumably because he's not held to any licensing or regulatory standards. I am surprised he didn't advise the 71 year old to cancel her policy and buy a 20 year term from his organization, which is his usual canned response. He did say that she should "invest" and would probably or likely accumulate the 250k within a 13 year period, if she was healthy. Isn't that the point the point of the life insurance? Who knows if she'll live that long, which is why she has the life insurance in the first place. He's like a broken watch; correct twice every day.

sammyg
Springville, UT

Some excellent comments here.

Cancelling a policy at age 71 because a radio financial pundit says so is the most absolute dumbest thing a person could do. There are options to explore!

What is not known is if this policy has any cash value. Important fact to know before ever suggesting cancelling a policy. Second is health of the insured. An excellent comment about mortality tables was previously made.

If this person is serious about investing their money in something else I'd be the first to step up and say "Hey, let me take over those insurance payments!" Any children or next of kin should seriously consider buying out that policy if the insured is wanting to put their money elsewhere.

The lady could kick the bucket the next day and man what a tax free windfall and excellent ROI that would be to a relative. A life settlement could be an option as well in the absence of a relative stepping up to the plate.

Never cancel a policy without exploring ALL of the options.

Dave Ramsey is the last person on the planet to trust for sound advice when it comes to estate and insurance planning.

Floyd Johnson
Broken Arrow, OK

I get a wash at 13 years, but I use different math. Investing at 8% and $600 monthly, she would have $160,000 in 13 years. Her $250,000 insurance policy will cost her $90,000 over 13 years. Assuming $90,000 would otherwise sit in a bank account, the insurance policy is only increasing the value of her estate by $160,000.

This sweet lady should be spending this money on herself. She has no obligation to provide for future generations. Her heirs should be united with that message. $600 per month could pay for light housekeeping, help maintaining a garden, transportation to a restaurant for a weekly lunch with friends, a catered meal with family or whatever she wants to improve her quality of life.

The best gift she can give is to provide for her own retirement so that she does not become dependent on others. If she does not have enough money for a modest estate, she cannot afford $7,000/year for this policy. The appropriate question is: "How do we convince her to cancel this policy so that she will be more stable in a few years?"

sammyg
Springville, UT

taxman

"... I agree with the general premise that whole-life policies are often over-priced and not worth the cost."

Hmm, that premise must be something you heard from Dave because that's what he preaches, it wasn't mentioned in this article, universal life was.

While there are many different companies out there selling whole life, these policies are structured to be high on one end as opposed to the other, they do average out. They also provide a guaranteed rate of return, death benefits are tax free, and they have 'living' benefits as well such as being able to borrow against or use as collateral. And some of these companies offer dividends in addition to the interest.

There is also the paid up option where the policy is paid up at a contractually determined time. In this day and age it is possible to out live the premium period and have a paid up policy. It just depends.

sammyg
Springville, UT

Ravonal

I was not aware of Dave Ramsey's Primerica connection. I'm not a groupie. I fact checked that and you are absolutely correct.

It explains his anti-permanent insurance bias.

Thank you.

Aurelius maximus
Berryville, VA

I think a lot of the advice Dave Ramsey is good but it is still left up to every person to do their due diligence ESPECIALLY when it comes to investing.

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