Dave Ramseys: Always buy Term Life Insurance

If you ever watch Dave Ramsey, you know he says always buy term insurance, never buy permanent insurance.

Is that the truth? Should Term insurance be the only option to consider?

The short answer to that question is, no. Any time you suggest there is only one option, you neglect the most important thing, the client and their needs. Term insurance does fit into Dave’s overall financial recommendations, but for many people, there may be better options given their own personal situation. Let’s look at some reason now.

First, most families SHOULD consider Term Life Insurance over permanent solutions. Term insurance will be the most affordable option for many families. And if someone cares about you and depends on your income, then life insurance isn’t only an option, it’s a necessity. If you die prematurely without proper coverage, your spouse and children may be left without the required assets to pay for their expense (mortgage, debts, groceries phone bills, etc.)

But what kind of insurance should you purchase?

Well like I have mentioned Dave’s overall plan makes sense. One key staple to Dave’s plan is to live in your means, spend less than you make, and invest in some sort of ETF or Mutual fund. This is a crucial component of his plan. You need to be paying down your debt (your mortgage) while still having assets available to you. If you can continue to pay down your mortgage, while increasing your investments, the need for life insurance in later years is minimal. So for Dave to recommend only term insurance, it makes sense. But it’s not the reality for many Canadians.

We know people have a hard time saving, yes buying affordable life insurance is better than not. However, for a person who is not building assets at a sufficient rate, Dave’s recommendations become very harmful. If you do not have savings or assets (and are not building them) and only buy term, then you are setting yourself up to leave a financial burden to the people you care most about.

This is one situation where a permanent solution makes more sense. If that permanent solution also has a ‘forced savings account’ as part of the policy it will actually help those clients do the overall same plan, which is to build assets and protect your loved ones along the way.

Where Dave’s recommendation really goes off the rails is when it comes to corporate life insurance solutions. In Canada, we have some massive tax advantages for a corporation to own life insurance. Especially tax advantages related to permanent life insurance. By saying you should NEVER look at permanent insurance.

So what are our final thoughts?

Be very cautious about anyone who says you should ALWAYS or NEVER purchase x. More important understand that your overall financial picture is what matters. When you look for an individual product or investment, you make cost yourself more than you realize.

Life insurance is important and needed by many Canadians. Make sure you make the right decisions.