The Truth About Dave Ramsey – My Response to Dave Ramsey’s Article “The Truth About Life Insurance,” Part 2

Posted by:  BeamaLife Editor  on 13 Jul, 2010

Last time, I started to disassemble Dave Ramsey’s article, “The Truth About Life Insurance.”  I want to talk this week about his next inflammatory comment, where he claims it is “sad” that 70% of life insurance policies sold are cash value life insurance, while the other 30% are term life insurance.

Term life policies provide coverage for a predetermined period of time, but may not last the whole rest of your life.  Cash value life insurance policies, on the other hand, do provide coverage until the day you die, whether it be tomorrow or a thousand years from now.

Here’s an important fact Ramsey omitted from his article, probably due to the fact that he was unaware – for every 100 life insurance policy payouts, 99 of them went to policy holders with whole life insurance.

According to a study conducted by Pennsylvania State University, 45% term life insurance policies are terminated or converted within the first year, 72% within three years. Only 1% end in a death claim. And yes, policy holders who owned term life insurance but didn’t die during that term received absolutely nothing.

So let us look at Ramsey’s argument through that lens. I feel – and I’m sure I’m not alone – that if someone offered to take my money, then gave me a 1% chance of ever seeing it again, I’d have to pass.  But Ramsey is suggesting just that, to every person who watches his show, listens to his podcast or reads his newsletter.  If every American followed his advice, 99% of our country would die without leaving any legacy – beyond medical and funeral bills – for their children.

Next, Ramsey moves into the frequently-touted “buy term and invest the difference” strategy. I’ll show you why that idea almost never works.