Dave Ramsey Warns This Is 'One of the WORST Financial Products Out There.' Is He Right?

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  • Dave Ramsey believes whole life insurance is one of the worst financial products available.
  • He believes the only people who recommend it are insurance salespeople who make a commission from selling it.
  • Ramsey recommends term life insurance instead.

Read this to avoid potentially buying a bad product.

Finance expert Dave Ramsey has lots of suggestions about what people should do with their money -- including which financial products to steer clear of (like credit cards).

Ramsey's advice isn't always right. For instance, that anti-credit card stance mentioned above doesn't make sense for most people. That's because cards can help build credit and earn rewards and have no real downside as long as the bill is paid off before interest is owed.

But one of Ramsey's warnings about a terrible financial product is absolutely spot on, and it's a warning everyone should take seriously. Here's why.

This is the financial product Ramsey says to steer clear of

Whole life insurance is the financial product that Ramsey has spoken out against and warned consumers away from.

Ramsey said whole life insurance is "expensive, and it's one of the worst financial products out there." Ramsey warned many insurance salespeople try to sell whole life coverage despite this. They do that because they can earn a large commission from these policies. However, he explains these agents are the only ones who think the purchase of whole life coverage is a good idea.

This doesn't mean Ramsey is against life insurance entirely, though. He believes anyone with people depending on them should get a term life insurance policy with a death benefit of 10 to 12 times their annual income, or with a $250,000 to $400,000 death benefit if they are stay-at-home caregivers.

Here's why Ramsey's right

Ramsey is 100% correct that the vast majority of people should not buy whole life insurance and should opt for term life coverage instead.

Whole life insurance premiums are five to 15 times costlier than term life insurance premiums. The premiums are higher because the coverage remains in effect indefinitely, so the death benefit is always paid. The premiums are also higher because of the investment component of whole life coverage. Policies accrue a cash value, as some of the money paid in premiums is invested.

But, as Ramsey has explained, permanent coverage for life isn't usually needed -- or worth paying for -- due to the fact most people eventually "self-insure" or have the money their loved ones need to survive without their income (or services). And policies are a bad investment because of high fees, strict rules for when and how money can be accessed, and lower returns than many other safe investments provide.

There is very little reason to pay extra for a more expensive insurance policy that is unnecessary for most people when this money could be invested in a brokerage account and produce better returns. The fact that whole life policies are so expensive without offering any added value does indeed make them one of the worst financial products in existence.

Unless there's a specific reason why permanent coverage is needed (such as a disabled relative who will need expensive care after a death), it's best to follow Ramsey's advice and just say no to a whole life insurance plan. Opt for term life instead.

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