Dave Ramsey Says This Is the Only Type of Life Insurance You Should Get

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It pays to listen to this advice on this topic.

Key points

  • If you're getting life insurance, you can choose between term life and whole life coverage.
  • Dave Ramsey favors term life insurance, and it's the most cost-effective alternative of the two options.

Purchasing life insurance is a great way to protect the people you care about the most. While it's never comfortable to think about the idea of dying suddenly, or getting sick and passing away at a relatively young age, it's not out of the realm of possibility for anyone. And if you put a life insurance policy into place, you'll gain the peace of mind that comes with knowing your loved ones are protected financially.

Meanwhile, when it comes to buying life insurance, you have choices. You could purchase a term life policy, which will cover you for a specific number of years, or you could buy whole life insurance, which will cover you for the rest of your life.

At first glance, whole life insurance might seem more appealing. But if you ask Dave Ramsey, term life insurance is really the only type you should consider buying.

The upside of term life insurance

Why does Ramsey insist that term life insurance is the way to go? It's simple -- it all boils down to cost.

Whole life insurance can be far more expensive than term life insurance -- so expensive that many consumers struggle to keep up with their premiums costs. And so in Ramsey's mind, you're better off having term life insurance than starting out with whole life insurance and losing your coverage once you're no longer able to pay your premiums.

In fact, Ramsey has gone so far as to call whole life insurance a rip-off. A big reason many consumers are drawn to whole life insurance is that these policies accumulate a cash value over time. That's something term life insurance won't do. But while that cash value might seem appealing, since it's money you can borrow against or even cash out down the line, the amount you'll pay to accrue it can be prohibitive.

You could spend a lot less on term life insurance and then take the money you aren't sinking into premiums and invest it in stocks or other assets. Go that route, and you're likely to see more growth than you will with a whole life policy.

Remember, too, that the purpose of life insurance is to protect your loved ones in the event of your passing. Term life insurance may not accrue a cash value, but if you pass away two years after putting a $1 million policy into place, your beneficiaries will get that $1 million. And that, Ramsey insists, is the important thing to focus on.

What's the right call?

Some people will tell you that whole life insurance is a means of forced savings. And there's some truth in that.

But ultimately, you have to ask yourself what your goal is in buying life insurance -- to accrue savings, or to protect your family? If it's the latter, term life insurance can help you cover your loved ones at a fraction of the cost of whole life insurance. And that's why Ramsey is only one of several financial experts who think term life is the best way to go.

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