“So How Long Have You Been Selling Whole Life Insurance?”

Summary

Ramsey Everyday Millionaires Episode Summary: “So How Long Have You Been Selling Whole Life Insurance?”

Release Date: March 7, 2025
Host/Author: Ramsey Network
Featuring Hosts: Dave Ramsey, Ken Coleman, Rachel Cruze, George Kamel, Jade Warshaw, and Dr. John Delony

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Introduction

In the March 7, 2025 episode of Ramsey Everyday Millionaires, titled “So How Long Have You Been Selling Whole Life Insurance?”, the Ramsey Network delves deep into the intricacies of whole life insurance, particularly scrutinizing its viability as a long-term investment vehicle. The episode features Dave Ramsey, alongside co-hosts, engaging in a candid discussion aimed at educating listeners about the financial implications of whole life insurance versus more traditional investment avenues.

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Andrew’s Inquiry on Whole Life Insurance as an Investment

The episode kicks off with Andrew, a licensed insurance agent from Miami, posing two critical questions about whole life insurance:

1. Tax-Free Growth Viability: Andrew questions whether whole life insurance can be a viable option for individuals who have maximized their Roth IRA or Roth 401(k) contributions and are seeking additional tax-free savings. He highlights that, despite its purported tax advantages, whole life insurance typically offers lower returns compared to investment brokerage accounts.

   Andrew [00:24]:
   “Whole life insurance also grows tax free. I know it doesn't have the same rate of return, but if a person wanted to increase their long-term tax-free savings, would that still be something you would consider as a viable approach?”

2. Characteristics and Viability Post-Maxing Traditional Accounts: He further explores whether whole life insurance remains a sensible financial strategy after individuals have maximized their contributions to more conventional tax-advantaged accounts.

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Dave Ramsey’s Critique of Whole Life Insurance as an Investment

Dave Ramsey responds with robust skepticism regarding the efficacy of whole life insurance as an investment tool. He dismantles the notion of its tax-free growth and highlights inherent financial drawbacks.

• Tax-Free Growth Misconception: Dave clarifies that whole life insurance does not genuinely offer tax-free growth unless the policyholder incurs a loss. He explains that the cash value's basis is the total premiums paid, and any growth beyond that could be taxable.

  Dave Ramsey [01:30]:
  “Whole life does not grow tax free unless you lose money. And your basis for tax purposes in a whole life policy is the total of your premiums.”

• Poor Rate of Return and High Fees: He emphasizes that whole life insurance policies typically offer meager returns due to high fees, making them inferior to other investment options.

  Dave Ramsey [03:31]:
  “The rate of return is horrendous and the fees are so high. And so no, I would never consider that as an option.”

• Comparison to Term Life Insurance: Dave contrasts whole life with term life insurance, pointing out that whole life can be up to 20 times more expensive for the same coverage, with the excess going into a dubious "cash value" investment.

  Dave Ramsey [04:58]:
  “Whole life is 20 times more expensive than the same amount of term on the same person.”

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Understanding Whole Life Insurance Versus Term Life Insurance

Dave further elaborates on the structural differences between whole life and term life insurance, stressing that the additional costs in whole life policies predominantly fund an ineffective investment mechanism rather than providing genuine insurance benefits.

• Cash Value and Investment Return: He explains that the "cash value" grows at an abysmally low rate of 1.2%, which pales in comparison to the prevailing inflation rate of 4.7%, effectively eroding the policy's value over time.

  Dave Ramsey [05:45]:
  “The average whole life policy in America today averages 1.2% with an inflation rate of 4.7.”

• Initial Losses: For the initial years, the policyholder's contributions do not contribute to the cash value, equating the experience to placing money in a non-yielding account.

  Dave Ramsey [05:29]:
  “The first three years on a whole life policy, your investment call growth is 0, 100% of your $95 a month.”

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Cash Value and Policy Loans: Limited Benefits

The discussion moves to the practical limitations of accessing the cash value in whole life policies. Dave underscores that borrowing against the policy's cash value typically reduces the death benefit and complicates the policyholder's financial planning.

• Loan Implications: Borrowed amounts must be repaid with interest, and any outstanding loans diminish the death benefit, rendering whole life policies ineffective as a true investment strategy.

  Dave Ramsey [07:04]:
  “If you borrowed 20,000 and $100,000 policy and you died with the loan out, you get 80 instead of 100. They pay back the loan, so they make sure they get to keep it.”

• Cashing Out the Policy: Opting to cash out the policy results in the loss of accumulated value, negating any potential financial benefits.

  Dave Ramsey [07:38]:
  “Have lost money on it. So it's not taxable.”

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Concluding Arguments: Why Whole Life Insurance Falls Short

In wrapping up the discussion, Dave Ramsey reiterates his stance that whole life insurance is an ineffective and costly financial product, especially when compared to more straightforward investment strategies like taxable brokerage accounts or even saving in traditional accounts.

• Administrative Overhead: The high administrative costs associated with whole life policies siphon funds away from the policyholder, undermining the potential for any real investment growth.

  Dave Ramsey [06:26]:
  “The insurance company keeps it. You do not get the face value plus the cash value.”

• Alternative Recommendations: Instead of investing in whole life insurance, Dave advocates for allocating additional savings into more transparent and higher-yield investment vehicles, humorously suggesting a "fruit jar" as a metaphor for simple savings methods.

  Dave Ramsey [06:47]:
  “You're better off put money in a fruit jar, darling. At least when you die, it's there.”

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Final Thoughts

The episode concludes with a strong advisory against whole life insurance as a means to build wealth. Dave Ramsey emphasizes the importance of understanding the true costs and limitations of such financial products, urging listeners to seek more effective and transparent investment strategies to achieve financial prosperity.

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Notable Quotes Recap

• Andrew [00:24]:
  “Whole life insurance also grows tax free. I know it doesn't have the same rate of return, but if a person wanted to increase their long-term tax-free savings, would that still be something you would consider as a viable approach?”

• Dave Ramsey [01:30]:
  “Whole life does not grow tax free unless you lose money. And your basis for tax purposes in a whole life policy is the total of your premiums.”

• Dave Ramsey [03:31]:
  “The rate of return is horrendous and the fees are so high. And so no, I would never consider that as an option.”

• Dave Ramsey [04:58]:
  “Whole life is 20 times more expensive than the same amount of term on the same person.”

• Dave Ramsey [05:45]:
  “The average whole life policy in America today averages 1.2% with an inflation rate of 4.7.”

• Dave Ramsey [07:04]:
  “If you borrowed 20,000 and $100,000 policy and you died with the loan out, you get 80 instead of 100. They pay back the loan, so they make sure they get to keep it.”

• Dave Ramsey [07:38]:
  “Have lost money on it. So it's not taxable.”

• Dave Ramsey [06:47]:
  “You're better off put money in a fruit jar, darling. At least when you die, it's there.”

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Conclusion

This episode serves as a critical examination of whole life insurance, debunking myths surrounding its benefits and highlighting its shortcomings as a financial tool. For listeners aiming to build substantial and sustainable wealth, Ramsey Everyday Millionaires provides invaluable insights, steering them towards more effective investment strategies and promoting financial literacy.

Transcript

[Dave Ramsey]

This episode is brought to you by SmartVestor. Connect with an investing pro near you.

At RamseySolutions.com SmartVestor Andrew starts off this hour in Miami. Hi Andrew. Welcome to the Ramsey Show. What's up?

[Andrew]

Not too much. Thank you so much for having me, Mr. Ramsey.

[Dave Ramsey]

Sure.

[Andrew]

So I had two questions regarding whole life insurance. I know you're general principal, but I've never actually heard you discuss these two characters. Characteristics of whole life insurance are these two scenarios. So I was kind of curious of your opinion regarding the subject, if you don't mind.

[Dave Ramsey]

Sure. I'm an expert on my opinion.

[Andrew]

So the first question is like this. Today in America, if a person is a single person is earning $150,000 a year or less, they can put up to $7,000 into a Roth IRA that grows tax free. But at $150,000 after tax is about 130,000. A single person pretty much anywhere in America still has plenty of money. So let's say you're putting money into investment brokerage account. My question was on whole life insurance. It also grows tax free. I know it doesn't have the same rate of return, but if a person wanted to increase their long term tax free savings, would that still be, would that be something you would consider as a viable approach? That they've already maxed out their Roth IRA or if they have a company, a Roth 401, they still can only max or 7,000.

[Dave Ramsey]

How long ago did you take your job selling whole life?

[Andrew]

I've actually, I've only sold a couple of policies, but, but no, I don't, I'm not actually involved in the industry specifically.

[Dave Ramsey]

How did you sell policies if you're not involved in the industry?

[Andrew]

Oh, I am a licensed agent, but I haven't done it in a few.

[Dave Ramsey]

Years because you pretty much spouted their line perfectly. This is the whole life sales line. That's how I knew you were selling it. You nailed it. Like you were just trained like three weeks ago. That's what it sounded like, not picking on you. But you are representative of the industry. Okay, so let me help you with this. Let me help you with this. Whole life. Whole life does not grow tax free unless you lose money. And your basis for tax purposes in a whole life policy is the total of your premiums. So if you pay in $100,000 over a bazillion years into your whole life policy and your cash value is $90,000, you have lost $10,000. And so of course there's no taxation or you can borrow your own money and pay them an interest rate to borrow your own money. And by the way, 100% of the time borrowed money is not taxable. So whole life in and of itself does not grow tax free. That is a falsehood. If it actually made money and you took the money out, it would be taxable, but they never do because they suck so bad. The rate of return is horrendous and the fees are so high. And so no, I would never consider that as an option. Instead I would listen to if you put your money in a fruit jar as your side investment after you maxed out a Roth, you're going to end up with more money than you will screwing around with the whole life policy because they lose money.

[Co-host]

I'm impressed that you sniffed that out as quickly as you did too much.

[Dave Ramsey]

Time in 30 years being hated on by whole life people.

[Co-host]

So that was pretty impressive. I'm not going to lie. I, I, I'm impressed.

[Dave Ramsey]

Well, I mean the, the, it's a scripted thing that clearly it's a, it's a, it's tax free growth, which is a complete lie, y'all. It's not tax free growth. If there is growth and you take it out, it's taxed, period. But there never is because the rate of return is so horrible and the fees are so high. So, so here's the way Whole life works for those of you listening. And he's talking about it as an investment only, but let's talk about it as an insurance product which is what it is purported to be. And that's you only have to have a life insurance license, not a securities license to sell the crap. So the, which is easy to pass if you can, if you can roll out of bed, you can probably pass your life insurance exam. It's not that hard. Securities exam, on the other hand, very hard. Now whole life is 20 times more expensive than the same amount of term on the same person. So a 30 year old buying $100,000 policy, if say for instance they did that for $5, whole life would be $100. Okay, so where does the extra $95 go above the cost of insurance? Because term is only insurance.

[Co-host]

That's right.

[Dave Ramsey]

It goes into an investment called cash value, which is what he was bringing up. Okay, the investment called cash value. The first three years on a whole life policy, your investment call growth is 0,100% of your $95 a month. In our example, the extra 19 times you're paying for this, you get 0 in your investment. So you open a bank account and you put in $95 a month for three years and the balance is zero.

[Co-host]

No one would do that, by the way, if they understood that.

[Dave Ramsey]

They do it all the time, but no one would do it if they understood that. You're right. Which is our goal here, is to make everyone understand it. Then once it does start making money. The average whole life policy in America today averages 1.2% with an inflation rate of 4.7.

[Co-host]

Losing money.

[Dave Ramsey]

And so after you get past those two things, here's the worst part of the whole thing. So this little couple buys $100,000 life insurance policy. They pay into it for 20 years. They have 20,000 bucks in there. Finally, after they got 1.2% and has nothing for the first three years, and then he dies, you know what they pay? They pay the life insurance. Just the premium, the face amount. What happened to the money? I've been paying $95 extra to build up in my savings account. Insurance company keeps it. You do not get the face value plus the cash value.

[Co-host]

Well, let me ask this because I.

[Dave Ramsey]

Let me finish. So you have a savings account that the first three years you put money in, they keep all of it. After that, you make 1% on it after that. And when you die, they keep your money. Who would open the savings account? Nobody. But people do. Every day. It's the biggest, let me tell you. It's the payday lender of the middle class. It's crap. Sorry, Andrew, but you asked.

[Co-host]

So when do they. A guy like Andrew, if somebody said, I'm interested, let's say they had built up a certain amount of cash value. When would a guy like Andrew say, here's the right time to get at that money? So you. So you know, it's all a risk game, but so that you can get it before you die.

[Dave Ramsey]

Well, you can't get it before you die. The only way you could get it is cash the policy in. Because if you borrow the money out, then you're paying before you die. They repay the debt to yourself to make sure they keep the whole cash value before they pay out the face value. So if you borrowed 20,000 and $100,000 policy and you died with the loan out, you get 80 instead of 100. They pay back the loan, so they make sure they get to keep it.

[Co-host]

Wow, wow, wow, wow.

[Dave Ramsey]

So the only way to get to keep the money is to cash out the policy.

[Co-host]

And then at that point, what was. Why get it to begin and you.

[Dave Ramsey]

Have lost money on it. So it's not taxable.

[Co-host]

Terrible. Terrible.

[Dave Ramsey]

So now you're better off put money in a fruit jar, darling. At least when you die, it's there. Assuming the family knows where the fruit jar is buried. But be careful with that one. That did happen to one of my relatives. We got, we got, we got cousins out there with metal detectors in the backyard trying to figure this one out. But don't do that. Don't do that one either.

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