When we review the numerous articles posted by Clark Howard concerning life insurance, it doesn’t take much reading to discover his take on the subject. It’s interesting that Mr. Howard’s opinion lines up pretty much with other celebrities (financial gurus) like Dave Ramsey and Suze Orman.
What separates Clark Howard (in my opinion) from the rest of the financial celebrities is that he provides advice on many more topics than the rest of the group. This means that anyone who tunes in to the Clark Howard show will likely get advice on a plethora of subjects. In this article, we want to focus on Mr. Howard’s opinion concerning life insurance because that is what we do.
For the sake of saving time and space, this article will be done in a Question and Answer format and Mr. Howard will be referred to as “Clark.”
First things first, Who needs Life Insurance?
Clark states emphatically that if you have any financial dependents or children, you need life insurance. Especially if you are a dual income family and both incomes are required to support the monthly expenses of the household. He goes on to complain that the insurance industry does not adequately address the problem that many people with young children do not carry life insurance. (1)
As insurance professionals, we agree with Clark’s opinion about the need for life insurance and hope that others who hear his advice will heed his advice.
Should You Purchase Life Insurance on your Kids?
For this question, Clark responds with a resounding no. His opinion is that if your children don’t earn income they cost you money and therefore there is no need to insure them. (2)
Our opinion is that although it costs money to raise children, that cost goes up even higher if a child dies and you have to dig into your savings or 401(k) in order to pay for a funeral which can cost between $8,000 and $12,000. Adding your children to your life insurance is easy and very inexpensive. Regretfully, children can die from an illness or an accident. The last thing you need is to stress over paying for funeral and burial expenses when you are trying to get through the grief of this kind of loss.
What type of Life Insurance should I Buy?
Here, Clark complains about the cost of insurance products that pay “massive commissions” to the agent and end up costing them more than the applicant can actually afford. Clark goes on to quote the statistics that “25% of people who buy life insurance stop paying on the policy in the first three years. By the 10-year mark, it’s almost 50% of us who quit paying.” (3)
What he fails to state is why people stop paying on their insurance policies. Certainly, permanent insurance costs more than term but the applicant knew that going in. What we should do is look at why these policies canceled.
- Did the insured lose their job and decide to cut back on non-mandatory expenses while out of work?
- Did the insured cancel one policy to purchase another policy?
- Did the insured die?
- Did the insured get a job where life insurance is part of their benefits and then opt to cancel their individual life insurance?
The point here is that although term life insurance is always the cheapest, it’s not always the right solution for everyone. And, term life insurance will not provide the living benefits that permanent cash value life insurance provides.
What Type of Life Insurance should I stay away From?
The type of life insurance that Clark warns his audience to stay away from is whole life. In fact, Clark uses almost 300 words to describe how dangerous this insurance product is to purchase. He states very plainly “whole life is sold as an investment vehicle as well as an insurance product. But it does a terrible job on both fronts.” (4)
We find his opinion to be confusing because most high net-worth individuals use whole life insurance for funding their “be your own banker” plan and a ton of whole life insurance is sold to seniors who prefer permanent insurance for final expenses. And, by the way, everyone has final expenses.
After reading his 300-word opinion about whole life insurance, we can only assume that Clark Howard has very few seniors or high net-worth people that listen to his program.
What about Life Insurance for Retirement Planning?
Clark’s take on using life insurance for retirement planning is well documented. In his response article to the question “What is a life insurance retirement plan and are they recommended?” Clark responds that since life insurance retirement plans (LIRP) are always funded with cash value life insurance like whole life and indexed universal life, it’s a non-starter to consider life insurance for retirement planning.
We already know how he feels about whole life but he appears to feel even stronger about universal life as evidenced by his statement “any insurance that has the word “universal” in it is radioactive for your wallet.” (5)
This is very interesting when you consider that indexed universal life insurance is used by many high-income earners because they tend to max out their contributions to traditional retirement planning products like the 401(k) or IRA which results in falling short of their wealth accumulation goals. Typically, indexed universal life earns more interest over time than traditional retirement products and this type of policy allows the policyholder to invest in the market without the risk of losing money.
Where Should I shop for Term Life Insurance Online?
In Clark’s article “How to Shop for Term Life Insurance,” he offers advice about shopping for his favorite type of life insurance online. In this article, Clark offers a decent list of websites that include insurance companies and insurance brokers. What he doesn’t do for the reader is to explain the difference between a company and a broker or which one you should choose. (6)
Clark probably gets some type of compensation for listing companies and brokers on his website and that’s perfectly okay if there is some type of disclosure about his compensation. We’ll just assume that he is compensated through a service like Google ads and receives some type of compensation for each click on his website’s ads.
Getting back to the difference between an insurance company and an insurance broker is important for consumers to understand. An insurance company sells only their brand of life insurance which is like walking into a Black & Decker store to buy some tools. An independent insurance broker represents many different insurance companies which is like walking into a Home Depot store to buy some tools.
With an independent insurance agent, the consumer has a greater choice of insurance carriers and insurance products because the agent is not beholden to any single company. The independent agent can shop your insurance with multiple carriers at once and then deliver the best insurance solution to meet your individual needs and budget.
The Bottom Line
Although it appears that Clark Howard, Suze Orman, and Dave Ramsey are knowledgeable about life insurance and what it can and cannot do, we feel that the advice they offer is for a particular segment of the population and leaves out the many sub-segments who have different needs that require different types of insurance, not just cheap insurance. We are available to every segment of the population.