For those of you familiar with Dave Ramsey and his opinions about life insurance, you may find it interesting that he’s not licensed to sell insurance. Do you know what Dave Ramsey says about indexed universal life insurance? He bases his negative opinions about life insurance on the theory that people who take his course ($139) will learn to amass a fortune in cash by eliminating debt and living on the cheap. Please don’t misunderstand, I respect Mr. Ramsey because his financial advice is based on scripture and will help most consumers to learn to live within their means. In my opinion, where Dave veers off course, is when he recommends to his audience that they forgo life insurance if at all possible. His least favorite product is indexed universal life and he only recommends term insurance at all because it is so cheap. Dave Ramsey’s insurance advice is way off the mark in my opinion and needs to be avoided, right there along with the advice of Suze Orman on life insurance!
What Dave Ramsey says about indexed universal life >>>
- What if you die Early? – One of the newer and more popular insurance products that Dave claims “is one of the worst financial products available” is Indexed Universal Life Insurance (IUL). Dave fails to understand that most consumers purchase IUL as an investment vehicle with the added value of having a life insurance benefit; not the other way around.
- He does believe that mutual funds are worthy of his praise, but fails to mention if you die six months after you open your mutual fund, you are left with less than your investment. With the IUL on the other hand, your beneficiary will receive the death benefit which is tax-free. In either case, life insurance is probably needed and we can help you with indexed universal life insurance or term life insurance. Sometimes an indexed universal life policy is a consideration, but you are just not ready for the premium commitment. In this case, we can offer a term policy that you will be able to convert to the indexed universal life policy at a later date.
- Those Nasty Fees – We regularly hear complaints about the fees associated with the IUL, but when you compare it with most mutual funds (which he says is okay), the fees for the IUL are less than half the amount charged by the fund. The reason for the lower fees is because the IUL fees are based on the death benefit, but the mutual fund fees are based on the account value. As your account value increases in the Indexed universal life policy, the amount of life insurance decreases. This will decrease expenses and fees. We can show you exactly what the fees are in an IUL policy and then compare that to a mutual fund account. This is what we do for our clients every day. Don’t just rely on some information that you have read on the internet, let us run a proposal for you so that you can see the real numbers. For more information about the fees for an IUL policy, call the experts at Ogletree Financial Services or complete the form on the left of this page.
- Tax Liability – mutual fund earnings are taxed depending upon whether the earnings are considered interest, capital gains, or dividends. This tax liability can significantly reduce your net earnings if you are in a high tax bracket. On the contrary, when the cash account in your IUL reaches a level where you wish to make withdrawals by either taking loans or partial surrenders, these transactions are generally income tax-free. If you withdraw from your policy to the basis in which you contributed, those are income tax-free and loans against your policy are also income tax free. If you follow Dave’s method and manage to raise several hundred thousand dollars in your mutual fund, when you die, the account balance could go into your estate and may or may not be a taxable event. This is dependent on the ownership of your mutual fund account. Since the IUL is a life insurance product, when you die, the cash value and death benefit are paid directly to your beneficiary (not to your estate) and is delivered tax-free.
Let us prepare an illustration for you so that you can see exactly what you can expect for income when it is time to retire. You will be in a better position to make an informed decision about your retirement funds and life insurance.
Dave Ramsay’s mutual funds contain no guarantees!
- What about the Guarantees? Most investors are looking for a guarantee of some sort. Whether it’s that your account will not be wiped out if the market tanks, or maybe you’ll earn a minimum no matter what. The mutual funds that are built into Dave’s Financial Peace University, contain no guarantees. If the market tanks, so does your account value. And, there is no minimum interest guarantee. Depending on the policy you select, the IUL offers protection against the market volatility by resetting your account value each year. This benefits you by assuring if the market tanks this year, it will not affect the earnings that you have already accrued.One of the most popular IUL’s that we recommend contains a minimum guarantee of 3%. So in the worst of times, no matter how bad the market performs, you are guaranteed to be credited 3% over the lifetime of your policy. If the market does better than 3% then the guarantee doesn’t even matter. To my knowledge, this 3% guarantee has never been used by the company.
No doubt, insurance and investment products can be tricky to understand for most consumers. Your best chance at earning the returns you expect and insuring your life at the same time, is to contact us for an illustration based on your personal goals. You can call us at (800) 712-8519 or complete the short form on the left of this page.