natalie is with us in baltimore hi natalie how are you hi dave how are you better than i deserve what's up um well i was just tuning in to your show not too long ago and you were speaking about life insurance and how a whole life has absolute junk.
I never understood how or why that is necessary or true um okay i believed i believed that whole life was better and i started out seeking whole life and so i ended up buying a policy for each of my three kids and i have a universal policy for my mom and um.
The policies i have for my three kids um one is it's called a whole attempt where you pay it for 10 years and it's paid up and so i did that with my oldest daughter and she has a policy it's only 15 or 20 000 for her yeah yeah it's a standard standard policy the reason you believe this is what you it's.
What you've been sold okay but let's walk let's walk through it for a minute okay there's two kinds of insurance as you mentioned there's cash value insurance and there's term insurance all right term insurance on average runs about 1 20th the cost.
Of whole life or cash value insurance in other words you could have bought that same policy instead of spending a hundred dollars you'd buy you a month or whatever it was let's use 100 to be an example then you'd spend five dollars a month so what does the extra 95 dollars that you're going to um what does it go to.
Okay well it goes to build up a savings account inside the policy called cash value does that sound familiar to you yes and that's why you bought it because you thought hey it builds up a cash value that's awesome all right and here here's the thing the problem is not that the problem is that the rules or the the the guidelines.
That happen to what happens to the money in the savings account on average it's making about one to one and a half percent horrible rate of return number one number two if you want your money out of the policy you either have to cancel the policy or.
You have to borrow your own money now you put the money in there you put the money in there but when you take it out on a loan you pay them interest to borrow your money well that's kind of stupid yeah you know you wouldn't take money out of a savings account and borrow borrow it.
From the bank you know and give them interest to borrow your own money back not if you're smart anyway and then but the worth the worst part of i mean the fees are really high the cash value doesn't build up for many many years but after two or three years finally it does start building up so it's really heavy loaded fees on the.
Front end and and then the worst part though is this you got a 15 000 policy on this kid what's the cash value in one of those an example i'm sorry i don't even know what i don't even know what the cash value on any of them are i'll give you a guess i'll give you a guess let's say let's say it's.
Five thousand dollars if you close the policy that they'd get five thousand dollars all right and you've we've just established that you've paid extra for that five thousand dollars to be in that policy so you have a savings account inside that policy right right you paid a lot more for this these.
Policies than you would have for the same amount of term insurance a lot more now so so that five thousand dollars is in there it's your money the problem is this if the person that the insurance is on dies they don't pay the 15 000 insurance plus your savings.
They pay the fifteen thousand insurance what happened you're saving oh it's gone and the only way you get the only way you have a prepaid insurance police are the only way you have a 10 pay policy is that that's not paid up it just means prepaid because here's the deal if you're an insurance.
Company and you are issuing life insurance as long as that person is alive or as long as that policy is in force there is a cost to cover them because there is a statistical probability of their death that after 10 years the statistical probability of that person's death did.
Not go away right so they still have a cost associated with keeping that policy on the books even though you've already got it paid up but all you did was just prepay it so you double paid and triple paid to pay in advance for many years to come and that's how it gets paid up that's.
The only way there's there's no such thing as paid up insurance it just means prepaid now they call it paid up because that's the that's the phrase they want to use so what would i do if i were in your shoes well if the people need life insurance let's get life insurance on them make sure the life insurance is there and.
Then i would close these policies and now if they're ill and can't get life insurance then you're stuck and you know you're they're stuck in the policy because their health situation doesn't allow them to change because they've lost their health since they got the policy but if they have a need for life insurance and can get life.
Insurance then buy the life insurance to replace it and then cancel this stuff and put your investments in something else that when you die they don't keep your money so you just don't want to go there it's just a really really bad place so that's why it's just inordinately expensive it is one of the worst financial products.
On the market today the car lease the whole life life insurance policy and the credit card are the three things that are keeping the middle class in the middle and people just they're they're just getting messed over i mean when you crunch the numbers on any one of the three of those things.
It makes you go ballistic about how bad they are about how rough the consumer is being treated in every one of those situations so i i stay away from it i would only suggest and for 25 years here on the radio i've only suggested term life insurance and i've never suggested anyone lease a car and i've never.
Suggested someone get a credit card because they hold you back causes you to not win i want you to win now obviously the people in those industries don't like me oh well i'll have to live with that oh darn i really wasn't signing up to take a poll here anyway.
We're just here helping folk and if you you know and you know who else doesn't like me will that be the title pawning people and the ripoff payday loan people because i tell people they're the scum of the earth i mean not only you're ripping people off but you're ripping poor people off i mean because that's who play that's.
Who does title you know you notice that payday lending is not the rich end of town right well they don't need it over there no they're too dead gum smart to do it that's why they're rich hello so if you're just keep doing stupid poor people stuff you'll stay stupid and poor i mean hey i've been there i know what.
It looks like i did stupid now i've done poor i know what it looks like actually i've never been poor i've been broke poor is a state of mind but i'm not gonna live like that and i'm not gonna continue to make the same mistakes over and over and over again then scratch my head and wonder why i'm still broke so you've got to make.
Decisions on how you're going to live and look around and say okay this is what wealthy people are doing let's do wealthy people stuff and you know there's a few wealthy people by whole life because they get sold to crap too but not very many most of us i mean i gotta tell you in.
The financial advising world in the financial coaching world the financial counseling world i don't know anybody that recommends cash value insurance except people who sell it i can't find them there's no outside people with a that don't have a conflict of interest looking at it like me and going no dave you're wrong you can't add.
No i can add you keep somebody's money after they save it for 20 years at death there's no way that's a good return on investment it's just bad and that's what this whole situation comes down to so those of you that don't like it you don't like me oh well i think i'll be able to live with that.
This is the dave ramsey show hey guys thanks for watching if you enjoyed this video click the subscribe button to get the latest content and check out these other great clips from the show you can do this you know that really is a message whether you've got 270 000 in student loan debt or 27 000 well you've got a.
Fifty thousand dollar income or five hundred thousand dollar income