(Legal disclaimer) Remember that this is just our opinion and NOT approved by compliance.
Source: http://www.daveramsey.com/blog/the-truth-about-life-insurance/
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Myth: Cash value life insurance, like whole life, will help me retire wealthy .
Ramsey’s Truth: Cash value life insurance is one of the worst financial products available.
Our advanced Marketer response: Cash value life insurance is a financial product that can be fantastic for some but not for others.
Ramsey’s Truth: Sadly, over 70% of the life insurance policies sold today are cash value policies. A cash value policy is an insurance product that packages insurance and savings together. Do not invest money in life insurance; the returns are horrible. Your insurance person will show you wonderful projections, but none of these policies perform as projected
Our advanced Marketer response:I don’t know what he’s talking about. I personally own a life insurance policy that is performing much better than originally projected. If I wanted to make up stuff, I could say things about financial show hosts, but that would be irresponsible so I won’t.
Ramsey’s Truth:
Example of Cash Value
If a 30-year-old man has $100 per month to spend on life insurance and shops the top five cash value companies, he will find he can purchase an average of $125,000 in insurance for his family. The pitch is to get a policy that will build up savings for retirement, which is what a cash value policy does. However, if this same guy purchases 20-year-level term insurance with coverage of $125,000, the cost will be only $7 per month, not $100. Not true, competitive monthly premium for 20 year term in the industry for $125,000 is closer to $12 or $13/month. He’s making up numbers. And of course that’s only coverage for 20 years – where will his family be if he dies at age 52 with money still on his mortgage and kids in college? The universal life is permanent coverage for whatever duration they need. Suppose this guy needs it to age 67 (retirement age), how much is a 37 year term? (It doesn’t exist).
Our advanced Marketer response:
WOW! If he goes with the cash value option, the other $93 ($87) per month should be in savings, right? Well, not really; you see, there are expenses.
Expenses? How much?
All of the $93 per month disappears in commissions and expenses for the first three years. Blatant lies. I ran an illustration which showed that after 3 years of expenses only $431 of the $3,132 extra dollars (beyond the term premium) is lost to policy charges and expenses. And that’s assuming the WORST CASE contractual interest rate. After that, the return will average 2.6% per year for whole life, 4.2% for universal life, and 7.4% for the new-and-improved variable life policy that includes mutual funds, according to Consumer Federation of America, Kiplinger’s Personal Finance and Fortune magazines. The same mutual funds outside of the policy average 12%. And there’s indexed universal life as well. Mutual funds are not without charges as well as many studies have showed just how dramatically large the charges can be. The returns for mutual funds could be much less and of course expose clients to a great deal of potential loss. And unlike Mutual Funds, life insurance values can grow
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