Our Universal Life Policy Is Costing Us More Than We Put In

Summary

Podcast Summary: Ramsey Everyday Millionaires – "Our Universal Life Policy Is Costing Us More Than We Put In"

Episode Information:

• Title: Our Universal Life Policy Is Costing Us More Than We Put In
• Host/Author: Ramsey Network
• Release Date: August 4, 2025
• Description: Explore how ordinary people have built extraordinary wealth and learn strategies to achieve similar financial success. Hosts from the Ramsey Network, including Dave Ramsey, Ken Coleman, Rachel Cruze, George Kamel, Jade Warshaw, and Dr. John Delony, discuss disciplined financial practices such as living below your means, avoiding debt, and smart investing.

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Introduction

In this compelling episode of Ramsey Everyday Millionaires, the Ramsey Network delves into the pitfalls of certain life insurance products and offers actionable advice on effective wealth-building strategies. The focal point of the discussion revolves around a caller's experience with an Indexed Universal Life (IUL) insurance policy and the broader implications of combining insurance with investment instruments.

Caller’s Dilemma: The Cost of an IUL Policy

[00:17] The episode begins with a call from Aaron, a postal service employee from Spokane, Washington. At [00:21], Aaron shares his concerns about the Indexed Universal Life (IUL) insurance policy he and his wife purchased in their early twenties. Now 29, Aaron has discovered that the fees associated with the policy are eroding the money they’ve invested.

Aaron states:

"the money that I put in, it's been eaten up by most of their fees. Yep, that's how you lie." [00:21]

He expresses his intent to cancel the policy to prevent further losses, highlighting the frustration of realizing that a financial product intended to secure his future is instead draining resources.

Host’s Analysis: Separation of Insurance and Investing

[01:12] Host B begins by probing Aaron’s intentions, confirming his desire to cancel the IUL policy due to its unfavorable terms. B emphasizes the importance of evaluating the cost versus the benefits, noting Aaron’s current investment would yield a lower surrender value compared to the amount invested.

B observes:

"there is some cash value... What is the face value of the policy?.... Okay, so you need more life insurance anyways." [01:49] - [02:09]

This leads to a critical realization: Aaron’s current policy does not adequately serve his life insurance needs, prompting the discussion on optimizing insurance coverage.

Optimizing Life Insurance Coverage

[02:07] The conversation shifts to assessing Aaron’s life insurance needs. Given Aaron’s annual income of $62,000, B recommends securing a term life policy amounting to 10 to 12 times his income, ideally around $750,000.

B advises:

"We need a much higher policy on that term life. We need at least 620,000, 10 to 12 times your annual income... you can keep that one and get a supplemental policy for half million on top of that." [02:34] - [03:12]

This advice underscores the principle of ensuring adequate coverage without overpaying for unnecessary features inherent in products like IULs.

Strategic Investment Recommendations

Transitioning to Aaron’s investment strategy, B emphasizes the importance of dedicating 15% of household income towards retirement investments, specifically recommending participation in the Thrift Savings Plan (TSP) offered by the postal service.

B recommends:

"investing 15% of your $62,000 income into retirement accounts that are tax advantaged." [03:16 - 03:34]

Aaron reveals he currently contributes 5%, prompting B to advocate for increasing this to 15% to accelerate wealth accumulation.

B advises:

"Baby step four is 15%. So you would triple that amount." [05:36]

By reallocating funds from the high-fee IUL to structured, tax-advantaged retirement accounts, Aaron can leverage compound growth more effectively.

Life Insurance vs. Investment: Clear Distinctions

A pivotal moment in the discussion occurs when B underscores the necessity of keeping insurance and investment strategies distinct to avoid suboptimal performance of financial products.

B warns:

"Never mix up your insurance and investing. Never combine them because then you have a product that does both things very poorly." [03:16]

This clear demarcation is vital for maintaining financial clarity and ensuring each component of one’s financial plan operates optimally.

Exposing the IUL Trap

As the conversation progresses, B shares his own experiences with debunking the myths surrounding IULs, highlighting their aggressive marketing and misleading benefits.

B states:

"This indexed universal life insurance policy. IUL. I did a whole video on this on my YouTube channel to expose it for the scam that it is." [07:14]

He points out the aggressive defense from IUL salespeople and the confusion it spreads among consumers:

B explains:

"Anything that's sold to you as an insurance plan and an investment scheme is just that. It's a scheme and you should run, run far away." [07:22]

This candid revelation aims to educate listeners on the potential traps of hybrid financial products.

Practical Steps Forward

Concluding the advice, B offers a clear, actionable path for Aaron and listeners facing similar issues:

1. Terminate the IUL Policy: Accept the short-term loss to eliminate ongoing fees.
2. Optimize Life Insurance: Switch to a term life policy that adequately covers income replacement without excessive costs.
3. Maximize Retirement Contributions: Increase TSP contributions to at least 15% of income, utilizing the recommended fund allocation (80% C, 10% S, 10% I).
4. Build a Robust Emergency Fund: Ensure three to six months of expenses are readily accessible, which Aaron already has.

B concludes:

"If you follow our plan for 15 to 20 years, you become self insured. The house has paid off, you've had decades of compound growth. Your family's going to be just fine." [07:50]

Key Takeaways

• Separate Insurance from Investments: Avoid financial products that conflate the two, ensuring each serves its distinct purpose effectively.
• Adequate Life Insurance Coverage: Secure a term life policy that is 10 to 12 times your annual income to provide sufficient financial protection.
• Commit to Significant Retirement Contributions: Allocate at least 15% of your income towards tax-advantaged retirement accounts to harness the power of compound growth.
• Be Wary of Aggressive Financial Schemes: Stay informed and cautious of products like IULs, which may offer more in fees than benefits.

Conclusion

This episode of Ramsey Everyday Millionaires serves as a crucial guide for listeners navigating the complexities of life insurance and investment. By sharing Aaron’s real-life predicament and the expert advice provided, the Ramsey Network emphasizes the importance of disciplined financial planning, transparency in financial products, and the elimination of high-fee investments that hinder wealth accumulation. Listeners are encouraged to critically evaluate their financial strategies, prioritize clear and effective investment plans, and safeguard their futures with suitable insurance coverage.

For personalized investment assistance, the episode recommends connecting with a SmartVestor professional via RamseySolutions.com.

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Notable Quotes:

• Aaron on IUL Fees:

  "the money that I put in, it's been eaten up by most of their fees. Yep, that's how you lie." [00:21]

• Host on Separating Insurance and Investing:

  "Never mix up your insurance and investing. Never combine them because then you have a product that does both things very poorly." [03:16]

• Host Warning Against IUL:

  "Anything that's sold to you as an insurance plan and an investment scheme is just that. It's a scheme and you should run, run far away." [07:22]

• Final Advice on Wealth Building:

  "If you follow our plan for 15 to 20 years, you become self insured. The house has paid off, you've had decades of compound growth. Your family's going to be just fine." [07:50]

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Resources Mentioned:

• Term Life Insurance Quotes: Zander.com
• SmartVestor Professionals: RamseySolutions.com/SmartVestor
• YouTube Video on IUL Scams: Host’s YouTube Channel

Connect with Ramsey Network: For more insights on building wealth and financial security, visit RamseySolutions.com.

Transcript

[A]

Foreign.

[B]

This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor Aaron is in Spokane, Washington. Up next, what's going on, Aaron?

[A]

Hey, thanks, guys for taking my call.

[B]

Sure.

[A]

My wife and I purchased an IUL Index universal life insurance policy when we were in our early 20s. I'm 29 now. Since I've been listening you guys a show for probably, I don't know, the last month, I took a deep dive and see what, you know, what they're giving me their rates and stuff. And I saw that the money that I put in, it's been eaten up by most of their fees. Yep, that's how you lie. So I'm all in, you know, taking it out. I'll take care of this, you know, get the stupid money to get, you know, take away the fees that they're going to get going to take when I take the money back out. But I don't know where to put it and park it so that we can retire and have a nice time period because I'm only 29. We started up the whole thing when we were 25.

[B]

So what is your goal here? You want to cancel this policy? You figured out it was a ripoff and then you got scammed. I hope it wasn't from someone you like.

[A]

No, it was. I work for the postal service and someone came in and sold it to us.

[B]

Okay. Did they sell it to other coworkers?

[A]

Yeah.

[B]

Oh, boy. Well, let's help get them out too, while you're at it. So what's it going to cost you to get out of this thing? And what will you get out of it when all is said and done?

[A]

So right now it says $12,000 is how much I have into it right now. And it said if I take it out, the surrender money I would get is 10,500.

[B]

Okay, so there's essentially a $1,500 penalty to get this money out. And you're willing. What they want is this sun cost fallacy of, well, I don't want to lose 1,500. We might as well keep it around. Well, there is some cash value. Well, there is a little face value on the policy. What is the face value of the policy? The actual death benefit.

[A]

It would be 300,000.

[B]

Okay, so you need more life insurance anyways.

[A]

Yeah.

[B]

And what are you paying per month?

[A]

I'm paying $240 a month.

[B]

And you already have an additional policy?

[A]

My additional policy is. I think it's only like $15 a month, but it's for an additional 250, I believe.

[B]

Is that a term life policy or a different type?

[A]

That's a term.

[B]

Good. Okay. What do you make a year?

[A]

I made 62,000.

[B]

Okay. So that means we need a much higher policy on that term life. We need at least 620,000, 10 to 12 times your annual income. I'd probably go for 750,000. It's going to be very affordable. As you can see. You're paying 15 bucks a month for 250. It's not going to go up that much to go to 750. So you can keep that one and get a supplemental policy for half million on top of that. That could be one way to do it. And you can jump onto Xander.com and get those quotes. Those are the folks we trust, the same people. I have my life insurance through, my wife's insurance through. And now on the other side, you're asking about building wealth. You want to retire one day.

[A]

Yeah.

[B]

And you were sold this as a wealth building scheme, I'm sure.

[A]

Yeah.

[B]

Okay, so we want to separate insurance and investing. Never combine them because then you have a product that does both things very poorly. So instead what I'd recommend doing is investing 15% of your $62,000 income into retirement accounts that are tax advantaged. Do you have one of those through the post office?

[A]

I do.

[B]

What do they offer?

[A]

They offer 5%.

[B]

5% match. Is it like a 403B? What's the retirement plan?

[A]

It's a. It's kind of like a 401k, but the federal version, it's called tsp.

[B]

Tsp. There we go. Thrift Savings Plan.

[A]

Yeah.

[B]

So when you go in there to kind of match the four mutual funds we recommend there, you're gonna have options of C, S and I. When you jump in, that TSP are you tracking? There's a lot of acronyms here. And so you'll do 80 and C, that's the common stock fund. And then 10% in the S fund, 10% in the I fund. And that'll get you pretty close to that diversification. We recommend 15% going into there from 29 to 65. You're going to be a multimillionaire.

[A]

Yeah.

[B]

You can crunch the numbers on an investment calculator just to prove it to yourself. And then you have insurance on the other side to protect the wealth that you're building. And I think you've learned that lesson now. But so don't conflate the two. Make sure you have the right types of insurance in place. You can jump onto ramseysolutions.com checkup and we'll walk you through it to make sure that you have the right coverage. Not too much, not too little, not any crappy policies that you need to get rid of. And on the other side, you invest 15% of your household income for the rest of your career, you're going to be a very wealthy man.

[A]

Yeah.

[B]

Do you have any debt right now?

[A]

No, we're. No car debt, no credit card debt. Our house is almost about halfway paid off.

[B]

Way to go.

[A]

Yeah.

[B]

Proud of you, man. That's awesome.

[A]

Thank you. I do already contribute the max 5% already into my TSP. So should I just take out that 240 that I'm contributing right now within my budget? Can I just put that in there?

[B]

And do you guys have an emergency fund of three to six months of expenses?

[A]

I have just about, we have about 15,000.

[B]

Okay. So if you're there, if that's the number that gets you there, then I would up that contribution. You told me you're only investing 5% and we just covered that. Baby step four is 15%.

[A]

Yeah.

[B]

So you would triple that amount. You, you know, I don't know, if you jump online to your, your portal for the TSP and you just ratchet up the contribution from 5 to 15%.

[A]

Okay. And just keep it in that one. Don't do any third party outside of the, outside of my job.

[B]

If 15% gets you there and it's a Roth tsp, do you have that option?

[A]

Yes, it's. It is, whatever I contribute goes into Roth, but then whatever they contribute goes into traditional.

[B]

That's right. Yeah. The match will sit on the traditional side. So yeah, if you have a Roth TSP and you go that, that split between the CSI 80, 10, 10, 15%, if you max that out somehow, if your income goes way up, then you can move on to, you know, a Roth IRA as well. That would be the next place to invest.

[A]

What would be the max that I.

[B]

Can contribute to the tsp?

[A]

Like. Yeah, is there like a, like a certain amount I can put into the Roth?

[B]

The same as the 401k. So it'd be 23,500 for this year.

[A]

Oh, okay.

[B]

So you won't hit that. You know, investing 15% of your 62, that'll be 90$300.

[A]

Okay.

[B]

So that's exactly what I do, man. You're on the right track. You're doing a lot of things well, I'm sorry you got hosed by apparently a good salesper selling this IUL at the post office. Do they just, do they allow people to just solicit in there?

[A]

They have to go through a couple people to actually get in there, but I think it was just their management and we're in North Idaho, so they don't really care.

[B]

They're like, sure, come do a little lunch and learn. If you're providing free lunch, we'll listen to you. Is that how it went down?

[A]

Yeah.

[B]

I got a sense that there's not a lot happening at the post office in Northern Idaho. Like, this is juicy stuff.

[A]

We're pretty, we're pretty high up there.

[B]

Well, see, you made me think it wasn't that big of a deal. You were like, oh, they don't care.

[A]

All right.

[B]

Anyways, I tell management, don't let more insurance people in the door. Yeah, definitely think we're done with that. But thank you for the call, Aaron. It's a good discussion and a good reminder for everyone out there. Little teaching on insurance versus investing and any type of permanent life insurance, which is what Aaron just talked about. This indexed universal life insurance policy. IUL. I did a whole video on this on my YouTube channel to expose it for the scam that it is. And every time I do this, Ken, guess who's coming after me? The IUL salespeople are very aggressive in the comment section saying, this guy doesn't understand. It's a great. A lot of wealthy people use this. And I'm going, not the ones that I know, not the smart ones. And so you gotta be careful out there. Never mix up your insurance and investing. Never combine the two. Anything that's sold to you as an insurance plan and an investment scheme is just that. It's a scheme and you should run, run far away. So what do you do instead? Get a term life policy level term life, which means you're going to pay the same payment every month. You're going to get way more bang for your buck. It's not going to have the cash value portion that they tout. You don't need that because you're going to build your own wealth by investing 15% of your household income into those tax advantaged retirement accounts. And if you do it the right way, you do it that way, you're going to pay a fraction of the price for your term life and you're going to build some serious wealth with compound growth with way less fees. So I hope that makes it simple for anyone that doesn't have a term life policy, jump onto Zander.com, get it done today. This is how you tell your family I love you. If something were to happen to you, how would they replace your income? What are they going to do? Instead of just grieving, now they're in a financial bind. So getting that in that term life policy 10 to 12 times your annual income 15 to 20 year term is great for most people because if you follow our plan for 15 to 20 years, you become self insured. The house has paid off, you've had decades of compound growth. Your family's going to be just fine. Thanks for tuning in to Ramsey Everyday millionaires Need help with your investments? Connect with a smartvestor [e-mail] smartvestor or click the link in the show notes. Ramsey Solutions is a paid non client promoter of participating pros. Learn [e-mail] SmartVestor.