Looking for Life Insurance? Dave Ramsey Says to Skip This Type

Life insurance is meant to protect the people who would be left with your expenses if you die. Most people do not enjoy thinking about it, which may be one reason so many end up with the wrong policy. The bigger question is not whether to buy coverage, but which kind to choose.

The two main options are term life and whole life. Both have supporters, but personal finance figure Dave Ramsey has a clear preference. He argues that term life is the better choice and that whole life should be avoided.

Why Ramsey Sees Whole Life as a Poor Value

On paper, whole life can sound appealing because it provides lifetime coverage. The drawback is cost. According to The Zebra, whole life policies can run about $3,000 to $5,000 more per year than other policies, depending on the insured person’s age and health.

George Kamel, an author and personal finance expert, wrote in an article for Ramsey Solutions that “As great as term life is, it has an evil cousin called whole life insurance.” Ramsey holds the same view.

Ramsey Solutions says life insurance serves one main purpose: replacing your income if you die. Whole life mixes in investment features that often deliver weak returns, making it a complicated and inefficient fit for that job.

What Ramsey Suggests Instead

Ramsey recommends level term life. It keeps the premium fixed for a set period and is typically the most affordable choice. If the insured person dies during that term, the beneficiaries receive a death benefit.

Kamel suggested aiming for a payout equal to 10 to 12 times your annual income, then investing that money in growth stock mutual funds, which have historically averaged 10% to 12% a year. The idea is that investment gains can eventually take the place of your paycheck.

Both Kamel and Ramsey also recommend avoiding whole life and investing the difference. For example, if whole life would cost $350 a month and level term costs $30, the remaining $320 could go into a tax-advantaged retirement account.

The Strengths and Weaknesses of Term Life

Term life has clear advantages over whole life, but it is not flawless.

Pros

Cons

Does Term Life Make the Most Sense?

For most people whose families depend on their income, term life is a practical place to start. It is affordable, easy to understand and designed for the years when your paycheck matters most. Whether whole life ever fits your situation depends on your goals, so it is worth comparing quotes, deciding how long you need coverage and reviewing the numbers before making a purchase.