In this video, Dave answers Ray’s question from Facebook. Ray asks, “Why term life insurance instead of whole life insurance? What is the difference?”
Term life insurance is just like any other insurance. You pay for insurance, and your beneficiary gets your money if you die. Cash value insurance, however, doubles as an insurance policy and an investment vehicle.
Say your term life policy costs $5. The same amount of coverage for whole life would cost you $100: $5 for the insurance and a $95 premium. That’s 20 times more expensive for the same amount of insurance!
Let’s say you want to close your whole life policy. Not only is the rate of return on your money so low that it won’t even allow for growth, but you could even have to borrow your own money that you paid and then pay interest to the insurance company. Additionally, when you die, your beneficiary will receive the face value of your policy, but all the cash you saved up is kept with the insurance company. It’s one of the worst financial products in the world!
Dave always recommends term life insurance. Get 10–12 times your income and cover the ones you love.
How much term life insurance do I need? Listen here: https://www.daveramsey.com/askdave/insurance/how-much-term-do-i-need
Hear more about the tax implications of cashing out whole life: https://www.daveramsey.com/askdave/taxes/8273
Thinking of switching to term life insurance? Read these term life mistakes to avoid: https://www.daveramsey.com/blog/5-term-life-insurance-mistakes
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The Dave Ramsey Show : Is Term Life Insurance Better Than Whole Life Insurance?