Should We Cash Out Our Whole Life Policy?

Summary

Summary of "Should We Cash Out Our Whole Life Policy?" Episode of Ramsey Everyday Millionaires

Release Date: March 26, 2025

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Introduction

In the March 26, 2025 episode of Ramsey Everyday Millionaires, the Ramsey Network delves into the critical decision of whether to cash out whole life insurance policies in favor of investing in long-term care insurance. Hosted by the seasoned experts from the Ramsey Network, including Dave Ramsey, Ken Coleman, Rachel Cruze, George Kamel, Jade Warshaw, and Dr. John Delony, this episode provides invaluable insights for individuals navigating their financial planning in their retirement years.

Caller’s Situation and Initial Query

The episode begins with a call from a listener seeking advice on long-term health care insurance. The caller, married and aged between 62 and 64, explains that they had purchased whole life insurance policies, following their parents' footsteps. Recently, their financial advisor recommended cashing out these whole life policies to invest in long-term care insurance aimed at covering potential nursing home expenses in the future.

Caller’s Question: “We changed them over and our financial advisor is suggesting that we cash those in and invest in a long term care insurance for nursing home and that in the future. Just wondering what your thoughts are on that situation.” [00:21]

Dave Ramsey’s Initial Assessment

Dave Ramsey responds promptly, assessing the caller’s financial standing and age. He emphasizes the practicality of cashing out whole life insurance, provided that the couple already has sufficient life insurance to sustain their financial needs.

Dave Ramsey’s Insight: “Cashing the whole life in is a no brainer. Assuming you have enough life insurance to take care of you.” [00:51]

He further probes into their net worth, confirming it stands at approximately $600,000, and their ages, 62 and 64 respectively.

Evaluating the Need for Life Insurance and Long-Term Care Insurance

After understanding their situation, Dave confirms that the caller’s financial condition can withstand the loss of a spouse without the need for additional life insurance. This leads him to affirm that dropping the whole life insurance is the prudent choice.

Dave Ramsey on Life Insurance: “So dropping the whole life is a no brainer.” [01:27]

When discussing long-term care insurance, Dave advises shopping around multiple companies to secure the best deal, cautioning against advisors who limit choices to a single provider.

Advice on Long-Term Care Insurance: “What you want to do there is you want to shop it among several different companies. Okay. And basically try to get the best deal.” [02:09]

Cost and Coverage Analysis

The conversation delves into the specifics of long-term care insurance costs and coverage. Dave explains the standard offerings, typically covering three years of care, which aligns with statistical data showing that most individuals do not require extended nursing home stays.

Dave Ramsey on Coverage Duration: “Very few people live three years once they get to a nursing home. Statistically it's 2.8 years on average.” [02:09]

Lauren adds context by referencing current statistics, highlighting that the average cost for a 60-year-old man is approximately $1,200 per year for a level policy.

Lauren’s Statistical Insight: “I'm seeing the stat here in 2023, average 60 year old man paid 1200 bucks per year. That's about right for a level policy.” [04:19]

Financial Implications of Long-Term Care Insurance

The caller expresses concern over the significant monthly payouts required for the insurance, which could be burdensome given their current net worth and the value of their whole life policies.

Caller’s Concern: “Our concern was, it would swing us up to quite a big payout every month for this insurance.” [03:34]

Dave evaluates the cash value of their whole life policies, totaling around $52,000, and suggests that this amount can offset the initial costs of long-term care insurance.

Dave Ramsey on Offsetting Costs: “You're going to use some of that 50 grand to offset your first year of costs to move that in maybe some of the second year.” [04:04]

Decision Point: Cash Out vs. Self-Insure

As the discussion progresses, Dave introduces the concept of self-insuring, especially pertinent for individuals with substantial savings. He illustrates that with a net worth of $600,000, the couple could potentially cover nursing home expenses without the need for additional insurance, thereby preserving their assets.

Dave Ramsey on Self-Insuring: “If you have money and so I don't mean that in a bragging way... And just equip this. Create the same exact environment, but better in your own home because you got the money to do it, you're self insured.” [05:37]

Lauren reinforces this by highlighting the importance of considering such significant expenses within one's net worth, suggesting that self-insuring might be a viable option if it doesn't disrupt their financial stability.

Lauren’s Reinforcement: “Think about that as part of your net worth as the listener. If you can stomach that from your nest egg without it affecting your life, you could self insure.” [06:23]

Statistical Considerations and Final Thoughts

The conversation concludes with a reflection on the average duration individuals spend in nursing homes and the variation in individual cases. Lauren provides additional statistics, noting that around 20% of people may require long-term care for more than five years.

Lauren’s Statistical Contribution: “20% will need it for more than five years.” [06:47]

Dave acknowledges the variability, emphasizing that while many may only need coverage for the average duration, others with early-onset conditions might require extended care, further supporting the need for thorough financial planning.

Key Takeaways and Lessons for Listeners

• Assess Your Financial Health: Before making decisions about insurance policies, evaluate your net worth and financial stability to determine if you can self-insure.

• Shop Around for Insurance: Don’t settle for a single provider. Compare multiple companies to find the best long-term care insurance rates and coverage.

• Understand Coverage Needs: Familiarize yourself with the average costs and duration of long-term care to make informed decisions about the necessary coverage.

• Consider Self-Insuring: If your financial situation allows, self-insuring can be a viable alternative to purchasing long-term care insurance, preserving your assets for potential future needs.

Notable Quotes

• “Cashing the whole life in is a no brainer. Assuming you have enough life insurance to take care of you.” — Dave Ramsey [00:51]

• “What you want to do there is you want to shop it among several different companies. Okay. And basically try to get the best deal.” — Dave Ramsey [02:09]

• “Think about that as part of your net worth as the listener. If you can stomach that from your nest egg without it affecting your life, you could self insure.” — Lauren [06:23]

Conclusion

This episode of Ramsey Everyday Millionaires offers a comprehensive exploration of the decision to cash out whole life insurance in favor of long-term care insurance. Through practical advice, statistical insights, and personal anecdotes, Dave Ramsey and his co-hosts guide listeners in making informed financial decisions that align with their long-term goals and security. Whether to opt for long-term care insurance or to self-insure is a pivotal choice, and this episode equips listeners with the knowledge to navigate this complex terrain effectively.

Transcript

[Lauren]

This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor Lauren is in St. Paul.

[Dave Ramsey]

Hi Lauren. Welcome to the Ramsey Show.

[Caller]

Well, hello Dave. How are you today?

[Dave Ramsey]

Better than I deserve. What's up?

[Caller]

Okay, I have a question regarding long term health care insurance. My husband and I, back when we were married bought whole life insurance policies because that's what our parents did for us. So we changed them over on and on. Our financial advisor suggesting that we cash those in and invest in a long term care insurance for nursing home and that in the future. Just wondering what your thoughts are on that situation.

[Dave Ramsey]

Well, cashing the whole life in is a no brainer. Assuming you have enough life insurance to take care of you. What's your all's net worth right now?

[Caller]

About 600,000.

[Dave Ramsey]

Okay. And how old are you guys?

[Caller]

We are 62 and 64.

[Dave Ramsey]

Okay. If he dies with no life insurance, are you okay?

[Caller]

Yes, yes.

[Dave Ramsey]

I mean financially?

[Caller]

Yes, Yes, I would be fine. Yes. Because he, that does not include what his. So he's a minister and he would get like a retirement through there also.

[Dave Ramsey]

That survive the survives.

[Caller]

Yes. Yeah, he cannot collect that till he's 67 and a half.

[Dave Ramsey]

But you can, you can collect it if he dies?

[Caller]

Yes, I can.

[Dave Ramsey]

Okay. All right. So you're okay to eat, you don't need life insurance. So dropping the whole life is a no brainer. Okay. Right now long term care insurance, what you want to do there is you want to shop it among several different companies. Okay. And basically try to get the best deal. In other words. And so I don't know who your, what's your financial advisor. If they're selling only for one company, that's a problem. Do they sell only for one company?

[Caller]

No, she suggested several different ones.

[Dave Ramsey]

Good. Okay, here's what you get. Here's what you get today. You get three years of coverage and that will cover 90 some odd percent of the cases. Very few people live three years once they get to a nursing home. Statistically it's 2.8 years on average. Okay. What normally happens is mom and dad go along like you guys have and you got a good nest egg here. And 75% of you ladies outlive their husbands. I don't know exactly what's going on there, but we'll talk about that later. And so Papa, Papa goes into a nursing home, burns up three or four hundred thousand dollars because it's one hundred, one hundred and something thousand dollars a year. And if he's there three years is 300 grand of your 600 and dies and leaves mama with the nest egg having been scrambled and fried. So I think you guys are a real candidate for nursing home insurance. The three years of coverage that you probably can buy and it's fairly reasonable if you shop around and you know, you want to, you know the other look for a feature that has in home care as well because it's sometimes cheaper and some and oftentimes a better quality of life to have in home care. And so yeah, I think you're getting good advice.

[Lauren]

Okay, no red flags here.

[Caller]

What our, what our concern was, it would swing us up to quite a big payout every month for this insurance. And so just, you know, how much.

[Dave Ramsey]

Are they quoting you?

[Caller]

679Amonth for both that would be 2,200,000. Life insurance or long term care policies.

[Dave Ramsey]

Yeah. And how much are you getting out of the whole life policies?

[Caller]

What are they valued at right now?

[Dave Ramsey]

Yeah. What's your cash value you're going to get when you close them?

[Caller]

Between the two of us, around 52,000.

[Dave Ramsey]

Yeah. So it pays for it.

[Lauren]

But the cost seems very reasonable. I mean I'm seeing the stat here in 2023, average 60 year old man paid 1200 bucks per year. That's about right for a level policy.

[Dave Ramsey]

So I don't hear anything that your financial advisor saying that's, that's like shooting rockets off. Wrong. It's all correct. The only thing you need to do is get down in the details and understand it and get comfortable with it. You're going to use some of that 50 grand to offset your first year of costs to move that in maybe some of the second year. And you know, then you've got to decide how far out you want to stretch this. Now you are 64. If you don't touch the 600 by the time you're 71, you will drop the long term because you'll have a million two to a million five.

[Lauren]

So you can stomach the risk at that point.

[Dave Ramsey]

Exactly.

[Lauren]

That's the point of insurance. It'll transfer risk to the insurance company instead of you. And right now you guys couldn't stomach that with your net worth to take a $300,000 hit.

[Dave Ramsey]

Yeah. So George, it suddenly occurred to me, I've told people all these years, don't buy long term care insurance until you're 60. And I really haven't talked a lot about if you build substantial wealth that you self insure until I just woke up and went, dad, gum, I'm 64. So what happens if Sharon or I are in a situation where we're incapacitated? Well, I get, you know, we've got money and so I don't mean that in a bragging way, but you know what I'm going to do? Get like a bed that lets up and down and hire somebody to live there and take care of one of us.

[Lauren]

If not leaving us a lot, you.

[Dave Ramsey]

Know, you think I'm.

[Lauren]

No, you know, you don't want to play bingo? You can do that at home.

[Dave Ramsey]

Yeah. Online or something. But yeah, no, I mean it's just I can hire a dad. Gum. Medical butler and not think anything about it, you know, full time. Put them in the house, take care of us or her or me or whoever it is. And the other one, just equip this. Create the same exact environment, but better in your own home because you got the money to do it, you're self insured. And I just determined that's what we'll do. So we're not a candidate for a nursing home under any circumstances I can think of. I guess there'd be some extreme thing, maybe, but at this moment in time, financially we don't need to do that.

[Lauren]

Well, think about the cost. 350 grand. So think about that as part of your net worth as the listener. If you can stomach that from your nest egg without it affecting your life, you could self insure.

[Dave Ramsey]

That's your average. That's the average with the average stay. Which means that some people don't make it that long and some make it longer. Right. And so you know, you've got early onset and good health. You could be there 10 years.

[Lauren]

Yeah, I'm seeing the stat here. 20% will need it for more than five years.

[Dave Ramsey]

Okay.

[Lauren]

So one in five people will have a longer stay. Long, like you said, Most people it's.

[Dave Ramsey]

2 years, average is 2.8. So good.