Dave Ramsey is a financial guru. He is a lot more than a financial expert, though. Dave Ramsey is an accomplished businessman, author, radio personality and motivational speaker. My wife and I went through Dave’s Financial Peace University with our church 8 years ago and benefitted from his advice and financial strategies. I have read his books and listened to him a lot on the radio.
Dave Ramsey frequently addresses life insurance in his books and on his radio show, so I feel compelled to write a review concerning his opinions on this very important topic. Hopefully, you will see from this article that I am a Dave Ramsey fan and appreciate how he has helped thousands of people get out of debt and turn their lives around. At the same time, I want to point out some things that the average consumer might not understand. Some of what I will share could save you a lot of hassle, heartache and money.
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My Story and Why I Mostly Agree With Dave Ramsey
Before I point out some areas of disagreement, let me first underscore my respect and appreciation for what Dave Ramsey does. Not only have I heard some tremendous stories of eliminating debt on the radio, but I personally know some people who have had huge success following Dave’s advice (through FPU). So, I’ll share a little bit of my story first, and then get into the points of disagreement.
I heard a little about Dave Ramsey early in my career. His presence on our local radio stations wasn’t extensive (like it is today), but I listened to him whenever I could. As a novice financial advisor in the early 2000s, I was eager to learn as much as possible. When my wife and I started Financial Peace University in 2008 (FPU), our kids were still young, but we had already purchased a lot of life insurance. As an agent and financial advisor, I understood the importance of life insurance. My wife was (and is) a stay-at-home mom, so we were totally dependent on my income.
We never had much debt, other than our mortgage, but we learned a lot about budgeting and making smart decisions with our money. Dave Ramsey was just one source of information. I frequently listened to Clark Howard, who is a very popular radio talk show host in Atlanta. In addition to these radio personalities, I read numerous books on the subject of life insurance and financial planning. It was and is my job and my passion.
Dave Ramsey’s Influence
While we didn’t cut up our credit cards (as Dave often recommends), we made some changes in our spending habits. We developed a budget (or a “spending plan”) and made some necessary and beneficial adjustments. Over the years, I have learned a lot about life insurance, and as an expert, I have parted ways with Dave on a few points. If you would like to read more about “my story” and how my viewpoint evolved on the debate over “term versus permanent life insurance”, please click here.
Dave Ramsey’s Excellent Advice – The Highlights
There is no need to extensively review Dave Ramsey’s advice on life insurance. You can easily read online what Dave (and Zander Insurance) has to say about life insurance. Although I am knowledgeable about Dave’s opinions on life insurance via his radio show, I spent a lot of time reading the material on his website. Also, I had to dust off my Financial Peace Revisited book and my FPU workbook so I could review all of Dave’s material.
Dave has a lot of great points pertaining to life insurance, so I’ll just highlight the best ones using bullet points. Then I’ll move onto points of disagreement.
- Don’t wait too long to buy life insurance (premiums increase, needed coverage is missing, and you could develop an illness making you uninsurable).
- Buy more than you think you need. Term life is so inexpensive; Most people underinsure and regret it later.
- Buy a term policy that is long enough. A lot of people err on the side of buying a shorter (less expensive term policy), but regret it later.
- Consider buying Disability Insurance. This is the “forgotten insurance” and is an area of great risk that people often neglect.
- Avoid agents that think Whole Life or Universal Life insurance can take care or all of your protection and investment needs.
- Avoid unnecessary riders on your term life policies.
It is likely that you are reading this article to find out where I think Dave might get it wrong. If you’re like me, you don’t want to hear all the positive stuff. When I’m shopping on Amazon or elsewhere online, I quickly jump to the negative reviews to see if they make valid points. So, let’s jump to the “negative” points.
Disclaimer: I’m not attempting to discredit or debunk Dave Ramsey. There are plenty of others who write about their disagreements with Dave’s advice. Some of the arguments are well-reasoned and compelling: others have a nasty tone and impugn Dave’s character. Hopefully, you’ll agree that my points of contention are more like the former.
Dave Ramsey Life Insurance Review — Where Dave Gets It Wrong
1. My first point of contention with Dave Ramsey is his insistence that people should never purchase cash value life insurance.
I agree, that for the vast majority of people, a term life policy is the most suitable type of coverage. However, there are many instances where a GUL (Term for Life) policy or a cash-value policy makes sense. I elaborate on this subject in other articles, but let me mention just one point that caused me to reject Dave Ramsey’s “always buy term” advice.
Fee-only (non-insurance licensed) financial advisors recommend permanent life insurance
Over my years as an advisor, I have met a few brilliant financial advisors who recommend cash-value life insurance for some clients. These advisors make no money from the polices and are not even licensed to sell insurance. I have listened to their reasoning and have seen the calculations used to evaluate various financial strategies. The bottom line is they have nothing to gain from recommending cash value life insurance, but they see it as a legitimate part of a financial plan (for some people).
There are numerous independent financial experts who recommend cash-value life insurance, but the average consumer is left to wonder if they stand to benefit from their advice. I am quite the skeptic and always want to “follow the money” to see if there are ulterior motives.
We give the most weight and credence to experts who are the most objective. The fact that Dave Ramsey doesn’t recognize the legitimacy of these financial experts with whom he disagrees is a little troubling.
2. Dave Only Recommends One Agency for Life Insurance Quotes
Zander Insurance is the one (and only one) agency that Dave Ramsey recommends for life insurance quotes and purchase. Although Zander Insurance is a good, independent agency, they only work with limited carriers. They don’t work with several of the best life insurance companies that have some of the lowest rates in the industry. For example, they don’t offer Ohio National Life Insurance.
As an example some folks shopping for coverage could potentially save $15/month with Ohio National. That doesn’t seem like a lot of money, but over 30 years, that adds up to $5,400 – not taking into account the opportunity cost of investing that money.
Clearly, Dave Ramsey benefits financially from his relationship with Zander Insurance. This is totally fine. However, it would be great if he referred people to ELPs (Endorsed Local Providers) who are independent agents. Let people choose from multiple experts. They can choose from several local experts with other types of insurance, tax services, and real estate through Ramsey’s ELP program. I think it’s a good idea to provide this type of service to people searching for like-minded, ethical professionals. I looked into becoming an ELP 10 years ago, but decided it wasn’t worth the fee.
3. Dave Fails to Distinguish Cash Value Insurance From Permanent Life Insurance
Cash value life insurance is one type of insurance (such as whole life or traditional universal life) that falls under the umbrella of Permanent Life insurance. Another type of permanent insurance is Guaranteed Universal Life insurance (GUL). This type of permanent life insurance is not designed to build cash value, but simply provide permanent life insurance. Some people call it Term for Life.
I totally agree that it is most important to carry adequate life insurance when children most depend on your income. Buying term insurance for 20 or 30 years makes a lot of sense. At the same time, invest money so that you will be financially secure when the term period ends. That’s a simple and effective plan that works for most people.
Term Life Beyond 20 or 30 Years
However, some people want term insurance to last beyond 20 or 30 years. That’s where Guaranteed Universal Life insurance (aka Term for Life or Term to age 100) can be suitable. None of us knows if our investments will grow as we expect. This is especially true for folks investing in mutual funds. Also, there can be other unexpected setbacks in life where life insurance could be needed beyond 30 years. After all, this is insurance. A lot of people like the idea of laddering their life insurance. Laddering policies allows you to keep some life insurance in force as your need for coverage “steps down”.
We have numerous clients who have the bulk of their coverage in term insurance, but have 10% to 25% in a guaranteed universal life policy (GUL) or another type of permanent policy.
Again, Dave doesn’t mention there is a type of permanent life insurance that doesn’t have an investment component and is not designed to earn cash value. If you go to Zander Insurance you will only see term policies up to 30 years.
4. Dave Ramsey Only Recommends One Insurance Company for Disability Insurance.
I applaud Dave for the time and attention he gives to disability income insurance. So many people disregard this type of coverage. With life insurance, there are dozens of top rated carriers. There are only 10 or 12 top-tier disability insurance carriers. Some carriers are very strong in certain professions and others have unique product designs.
Unlike term insurance, disability insurance policies can vary greatly in policy design, including how they define key policy provisions. For this reason, we offer several of the top carriers including, Principal Life, MetLife, Guardian, Mass Mutual, Illinois Mutual, Ohio National, Mutual of Omaha, Assurity Life and a few others.
I was disappointed to see that Dave only recommends one disability insurance carrier through Zander Insurance – Assurity Life. Assurity is an A- carrier and has some good products. However, I think it’s important to compare Assurity’s disability insurance policy to other companies.
Since disability insurance is more complex, it is much easier to offer only one carrier. However, you deserve to see more than one option.
5. Dave Ramsey Advice On Selecting A Term Policy Is Overly Simplistic
When posed the question, “Which company should I select for term insurance?”, Dave’s advice is mostly correct: Find the best price from a reputable company. Term policies are mostly similar, so I would agree that price is one of the most important factors. However, he misses one very important consideration when it comes to selecting a term policy. I cover this in depth in my article, Dave Ramsey’s Thoughts on Term Life. When you have two or three carriers that have nearly identical rates, how do you choose?
Some carriers have good convertibility options and others do not. You can read more about convertibility by checking out our review of Ohio National’s two industry leading term products. Their lower cost Basic product is convertible to one permanent product; their Plus product is “fully” convertible to any of their permanent products.
Some companies have very limited or no conversion options. We explain this in more detail here and elaborate on why conversion might be important for many people.
Conclusion to my Dave Ramsey Life Insurance Review
I hope you found this article informative. I am glad that Dave Ramsey has helped thousands of people eliminate debt and turn their lives around. Dave also provides sound advice on life insurance, for the most part. I think Dave could help his listeners more by encouraging them to shop with more than one agency for life and disability insurance.
Dave Ramsey’s “always buy term” advice has probably helped numerous people avoid buying a cash value policy that was inappropriate for their situation. We need Dave Ramseys in our world! However, we also need to look at the big picture and realize Dave might not be correct in all of his advice.
I hope my points of disagreement help you evaluate your options and make the best decision for you and your family. Like Dave, I want to see you make sound financial decisions and protect your loved ones from financial hardship.
Please call us for advice or life and disability insurance quotes and we will be glad to help.