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Not really. It's designed so it doesn't end up paying out. 3% of term insurance policies on average end up paying anything. As people get older, the term length they can get, gets shorter.
It's basically there for if you die early while you still have kids at home. Other than that, it's easy cash in the pocket for insurance companies.
Some people actually think that is exactly what life insurance is for.
In terms of the debt snowball you are correct that it's not the best move from a numbers standpoint but as I've taught people over the years when helping them out I use the following example.
You need to lose weight and find two possible solutions
Solution 1
I change all of your habits, routine and put you on a program that you really won't see much in the way of results for 6 months at best but more likely a year or two. I also tell you this is the best possible program for you healthwise
Solution 2
I change your habits and routine and tell you that you should drop 2-3 lbs a month
Most people take the second solution. The faster someone can see some results the more likely they are to stick with the program. In truth if someone who has been in debt forever takes either approach they will be better off no matter the method as long as they stick with it
Exactly. It's good to know how much you're "leaving on the table" by following a suboptimal solution, and eventually you'd like to change habits enough to get closer to an "optimal" solution...but 100% of an "80%" solution is better than 0% of a "100%" solution.
I don't like Dave Ramsey or Suze Orman or most anyone along those lines because they operate in an area where I have expertise and don't need their information, which (as pointed out) is usually pretty basic. But if they help people in trouble take those first steps to get their financial act together, more power to them. I'm not their target audience and that's fine. I suspect many (most?) posters on this board are not their target audience.
Which gets to the real point. Dave Ramsey's a good cashflow adviser. He's good at helping people free up a few extra dollars per month to get by and pay off their debt a little faster.
He is not a net worth adviser. His snowball method costs your more over the long term than paying down the highest interest rate.
That said, for people living pay check to pay check, a cash flow adviser is much more valuable, especially in the short term.
Actually, I guess it's only in the short term...
A lot of folks here act like that isn't something he regularly admits though. He's said more than a few times on air that his method isn't the best from numbers point of view, but he advises this method because emotionally it is easier for people to work on paying down these debts if they regularly eliminate one more person or business they owe money to and experience the emotional reward that comes along with that.
A lot of folks here act like that isn't something he regularly admits though. He's said more than a few times on air that his method isn't the best from numbers point of view, but he advises this method because emotionally it is easier for people to work on paying down these debts if they regularly eliminate one more person or business they owe money to and experience the emotional reward that comes along with that.
I think it is more than an emotional reward. I spent some time in consumer debt hell. It make life so stressful as each little unplanned expense was an insurmountable obstacle. The relief of eliminating a debt, having one less obligation to juggle, is a very tangible thing.
I think DR is a brilliant motivator, and his get out of debt plan is good enough. I just wish he would stick to those things. I have little respect for him because he insists on giving subpar investment advice in order to enrich himself, to the detriment of his financially illiterate listeners.
Not really. It's designed so it doesn't end up paying out. 3% of term insurance policies on average end up paying anything. As people get older, the term length they can get, gets shorter.
It's basically there for if you die early while you still have kids at home. Other than that, it's easy cash in the pocket for insurance companies.
Yes and no.
Cash value life insurance isn't expensive when you look at the long term value of it. Even if you have enough to "afford enough cash-value life insurance to provide for your family" the death benefit is still worth having for your family.
It's an easy way to infuse a large amount of cash into your families coffers tax free if you die early, especially if you're the major earner. At the same time it doesn't have an expiration date, so your family eventually gets its monies worth, with a growing death benefit. Again, all tax free.
97% of people get nothing for their term insurance.
So for 97% of people pay a little more for a value your family will eventually realize or pay less for nothing.
Okay, here's my scenario. I pay $42.30 a month for $250K of term life insurance (prekium is higher than typical because I didn't purchase it until I was 35). If I die tomorrow the proceeds will go into a trust that will help support my daughter for the next 8-10 years while she lives at home, then cover her college expenses with a little left over (assuming she doesn't pursue an advanced degree or go to a private school). If I died in five years, same thing. If she dies in 10, same thing. 15 years, she gets nothing from the insurance but by that time she'll be on her own.
That amount of money is pretty close to the maximum that I can afford to budget, and it would buy me maybe $10K in cash value life. If I die tomorrow she gets $10K which might last a couple of years, 5 years, 10 years, same thing. If I die in 15 or 20 years she still gets it but by then she'll be on her own.
Having her get enough money in the event of my early death to last her until the point where she can take care of herself is more important to me than the guarantee that she'll have some token amount at some point down the road when she really doesn't need it.
Am I wrong? If so, tell me why I should switch to cash value life.
It's funny that banks don't agree with Mr. Ramsey.
The following figures are directly from the "FDIC: Institution Directory" N.p.,n.d.Web 31 Dec. 2013
and represent the exact amount of money the following banks hold in life insurance
Bank of America $19,607,000,000
Wells Fargo $17,739,000,000
JPMorgan Chase Bank $10,327,000,000
U.S. Bank $5,451,892,000
It seems funny that Mr. Ramsey wants you to put your money in the bank, but never life insurance, and the banks but billions in life insurance.
He is against WHOLE life insurance, not term life insurance. Most financial advisors ARE against whole life insurance unless they stand to profit from it.
and term is largely a waste of money for long term planning.
Long term planning, perm > term.
It only pays out 3% of the time, that's why it's cheap relative to other insurance. It should be a bridge to mitigate risk for most people not an investment vehicle
It only pays out 3% of the time, that's why it's cheap relative to other insurance. It should be a bridge to mitigate risk for most people not an investment vehicle
I don't think he touts it as an investment vehicle. It's to take care of your family if you die and aren't able to.
This is an illogical statement. You might as well say "Long term planning, perm > cheeseburgers."
Term insurance shouldn't be a part of long-term planning, it's specifically designed to pay your final expenses and provide for your loved ones in the event of your untimely death. Your long-term goal should be to reach a point where inexpensive term insurance is no longer needed.
Depending on your goals there might be a place for cash value life insurance in your investment protfolio. But when it comes to the death benefit itself, if you can afford enough cash-value life insurance to provide for your family you probably don't need the death benefit in the first place.
Especially if you have so many cheeseburgers that you actually use your term insurance!
so...based on your logic, DR is COOOOOOOOOOL!!!!!!!!!
Then DR is a great entertainer!!!!
I think Mike killed a bull in the bull market once... that is how he got his name. (bad joke, I know.)
Anyway... yea, DR is an entertainer... finance guy to take advice from? Not even close...
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