When Can I Afford To Self-Insure? - Ramsey Everyday Millionaires

Summary5 min read

Ramsey Everyday Millionaires: Episode Summary

Title: When Can I Afford To Self-Insure?
Host/Author: Ramsey Network
Release Date: February 7, 2025

Introduction

In the February 7, 2025 episode of Ramsey Everyday Millionaires, the Ramsey Network hosts delve into the critical topic of self-insurance, specifically addressing when an individual can confidently forgo traditional life insurance policies. This episode provides actionable insights for listeners aiming to build and protect their wealth through informed financial decisions.

Listener's Inquiry: Assessing Self-Insurance Viability

Timestamp: [00:05]
A listener named Adam poses a compelling question to the hosts:

"Could you please explain how to know if I can be self-insured? I'm 47, married, with two daughters in their teens, and I have $250,000 in investments. I believe my current life insurance policy, which I bought from a relative, is overpriced, but I'm afraid to change broker. At what point can I pull the plug on having insurance?"
— Adam [00:05]

Adam is evaluating whether his current financial standing allows him to eliminate his life insurance policy, which he suspects is overpriced, and instead rely on his investments to secure his family's future.

Understanding Self-Insurance in Life Planning

Timestamp: [00:36]
Host B (presumably Ken Coleman) provides a foundational explanation:

"If you die this year, can your wife survive on the investments in the situation that she's in? Generally speaking, to be self-insured, you would need to be 100% debt-free, house and everything, and the kids are grown and gone, and there's a substantial investment and she could live off of the income that the investments create."
— Host B [00:36]

He emphasizes that self-insurance isn't merely about having investments but ensuring those investments can fully replace one's income without burdening the surviving spouse with debt or financial strain.

Timestamp: [01:19]
Host A concurs with Host B's assessment:

"Yeah, I agree."
— Host A [01:19]

This agreement underscores the importance of a comprehensive financial position before considering self-insurance.

Criteria for Being Self-Insured

Timestamp: [01:20]
Host B elaborates further:

"If you make $60,000 a year and you have a million dollars, well, the million will create, you know, $80,000 to $100,000 a year in income for your wife without touching the million. And your kids are grown and gone and your house is paid for, well, your wife actually gets a raise if you die, then you're self-insured."
— Host B [01:20]

Key criteria outlined include:

Debt-Free Status: All debts, including the mortgage, must be settled.
Children: Dependent children should be financially independent.
Substantial Investments: Investments should generate sufficient income to replace one's salary.

Host B illustrates that with a million-dollar investment generating $80,000 to $100,000 annually, a family earning $60,000 would not require life insurance, as the investments exceed the annual income needs.

Practical Recommendations and Reassurance

Timestamp: [01:19 - 03:52]
Host B advises Adam against self-insuring under his current circumstances:

"No, I don't think you're self insured. ... I would not tell you to do this. Now if you're getting ripped off on insurance, it's time to have some courage and talk to Zander Insurance and get some, the proper amount of term insurance in place. It's not that expensive."
— Host B [01:19]

He underscores the importance of life insurance in Adam's situation, given his age, family dependencies, and investment level.

Host A adds to this reassurance:

"This isn't scary. ... There's nothing to be scared about for switching."
— Host A [02:49]

He encourages Adam to overcome the fear of changing insurance brokers, highlighting that the process of obtaining proper insurance is seamless and beneficial.

Timestamp: [03:09]
Host B addresses Adam's specific concern about switching from a relative as an insurance broker:

"He's afraid of the conflict with a relative. ... Who is it I'm disappointing here?"
— Host B [03:15]

He challenges the emotional barrier Adam faces, questioning the rationale behind maintaining an overpriced policy due to familial relationships.

Overcoming Emotional Barriers to Financial Decisions

Timestamp: [03:19 - 03:50]
Host A confronts the emotional aspect:

"What are you afraid of? ... I'd rather save money, you know."
— Host A [03:19]

This statement encourages listeners to prioritize financial well-being over potential familial disappointments.

Host B continues:

"Why would someone that loves me overcharge me? ... So, yeah, get your term insurance in place the proper amount."
— Host B [03:32]

He reinforces the idea that genuine relationships shouldn't be strained over financial decisions, especially when it's about ensuring one's family's security.

Conclusion: Prioritizing Financial Security Over Emotional Comfort

Timestamp: [03:50 - 03:52]
Host B concludes by reiterating the necessity of appropriate life insurance:

"Get your term insurance in place the proper amount. You're not self insured yet. I don't think your wife wants to live on $25,000 a year. I could be wrong, but I don't think she does."
— Host B [03:50]

This final remark encapsulates the episode's core message: ensuring adequate life insurance is paramount for financial security, and emotional hesitations should not impede sound financial planning.

Key Takeaways

Self-Insurance Requirements: To self-insure effectively, one must be entirely debt-free, have no dependent children, and possess substantial investments capable of replacing their income.
Emotional Barriers: Fear of disappointing family members or disrupting relationships should not override the necessity of proper financial protection.
Actionable Steps: If current life insurance is overpriced or unsuitable, proactively seek competitive term insurance through reliable brokers to ensure adequate coverage.
Financial Prioritization: Prioritizing financial security ensures that one's family remains protected and can maintain their standard of living without undue financial stress.

Notable Quotes

Host B:

"If you make $60,000 a year and you have a million dollars, well, the million will create, you know, $80,000 to $100,000 a year in income for your wife without touching the million."
— [01:20]
Host A:

"This isn't scary. ... There's nothing to be scared about for switching."
— [02:49]
Host B:

"Why would someone that loves me overcharge me? ... So, yeah, get your term insurance in place the proper amount."
— [03:32]

This episode of Ramsey Everyday Millionaires serves as a vital guide for individuals like Adam, who grapple with balancing emotional ties and financial prudence. By outlining clear criteria for self-insurance and addressing the emotional hesitations that often accompany financial decisions, the Ramsey Network empowers listeners to make informed choices that safeguard their families' futures.

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Transcript12 lines

[00:06]
A
This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor Today's Ramsey Network app question is from Adam. He says, could you please explain how to know if I can be self insured? I'm 47, married, with two daughters in their teens, and I have $250,000 in investments. I believe my current life insurance policy, which I bought from a relative, is overpriced, but I'm afraid to change broker. At what point can I pull the plug on having insurance?
[00:37]
B
Hmm. Okay. Well, we're talking about life insurance. And so the way you answer the question back into it is if you die, if you die this year, okay, can your wife survive on the investments in the situation that she's in? Generally speaking, we would tell folks to be self insured, you would need to be 100% debt free, house and everything, and the kids are grown and gone, and there's a substantial investment and she could live off of the income that the investments create. So if she made 10% on 250,000, that'd be $25,000 a year and she's got two teenage daughters. No, I don't think you're self insured.
[01:19]
A
Yeah, I agree.
[01:20]
B
You got to replace your income. Now, if you make $60,000 a year and you have a million dollars, well, the million will create, you know, 80 to 100,000 a year in income for your wife without touching the million. And your kids are grown and gone and your house is paid for, well, your wife actually gets a raise if you die, then you're self insured. Right. And so if your investments will replace your income and, or the fact that you're debt free and, or the kids are grown and gone, that puts you there. But dude, you're not. I would not tell you to do this. Now if you're getting ripped off on insurance, it's time to have some courage and talk to Zander Insurance and get some, the proper amount of term insurance in place. It's not that expensive. Even at 47, if you're, if you're not overweight and you don't smoke, term life insurance is just cheap. And Zander Insurance can shop among a bunch of different companies, get you the right deal, get that in place. And I wouldn't even contact the relative. I would just contact the insurance company and cancel it. Your relative may not even be in the business anymore. If they are, they might not even notice the cancellation come through. Yeah, and if they do, when they call up. Just go. You know, I just want another different. I want a different direction. You're not required to get into a long explanation with someone that sold you something that you believe is overpriced and except goodbye.
[02:50]
A
Agree. You know, this isn't scary. I know it seems scary, but this is, again, kind of the law of the unknown. The thing we don't know anything about. We want to leave it alone because it seems scary or time consuming. And calling Zander, you're going to find out how seamless this process is to get properly insured. There's nothing to be scared about for switching.
[03:10]
B
Yeah, well, he said I'm afraid to change brokers. He's afraid of the conflict with a relative. That's what it amounts to.
[03:15]
A
No.
[03:15]
B
Okay, I'm reading that. Yeah. Yeah, that's what I get. So.
[03:19]
A
Well, you know what? Same deal there. What are you afraid of? Yeah, I mean, if you want to pay extra money just because you don't want to deal with disappointing a family member, that's just not the way I want to live. Oh. I'd rather save money, you know.
[03:32]
B
Well, and there's, you know, why would someone that loves me overcharge me? There's the other side of this. It's like, you know, who is it I'm disappointing here? The person who's supposed to be having my best interest at heart and yet overcharge me. So, yeah, I don't. Gosh, sorry. I'm disappointing you, right?
[03:51]
A
Who cares?
[03:53]
B
Yeah. So, yeah, get your. Get your term insurance in place the proper amount. You're not self insured yet. I don't think. I don't think your wife wants to live on $25,000 a year. I could be wrong, but I don't think she does.