For over 20 years I have worked personally with Dave Ramsey, his listeners and team members to help them make important and informed decisions about their insurance needs and the most cost effective ways to address them. Through the years I have responded to over 10,000 of Dave’s listeners regarding their insurance questions.
This blog contains many of the most frequent questions and answers since they provide an excellent resource to Dave's specific advice on very specific insurance questions. I hope you find this information to be a valuable resource that you can refer to many times in the future as you progress along your financial path. Click on the category noted which relates to your question so that you can see the posting currently available. If you do not see your question or still have concerns please don't hesitate to use the "Question Widget" noted on this site for further information or call us toll free at (800) 356-4282.
Many people are surprised that the advice from Dave and I doesn’t always involve the purchase of insurance as the only alternative. Insurance is a key component of any family's financial plan but it can also be a drain and a detriment if the wrong plans are purchased. Implementing the plans and approaches that Dave and I recommend, most importantly, the establishment of an emergency fund, will help reduce a families overall insurance costs and allow them to focus their dollars on more important things such as getting out of debt and growing wealth.
Should I Buy Life Insurance Instead of Selecting the Survivorship Option on My Retirement Plan?
This approach is typically referred to as pension maximization. This is often done by people who do not want to have the reduction in their monthly benefit that occurs if they select a survivorship benefit or they do not have survivorship benefits as part of their pension. By purchasing a life insurance policy, the beneficiary receives the death benefit instead of a continued monthly income, which allows the primary retiree to receive the higher income as long as they are alive. This approach works quite well as long as you can qualify for a term life policy based on your health and you use the savings generated by not buying a cash value plan to create a savings account in the event that you outlive the term policy.
The primary purpose of the plan is to buy term and invest the difference to create a fund that will replace the life policy when it expires. You really don’t need an amount longer than 20 years since the growth of your savings plan will offset the need for life insurance into the future. You just need to make sure the amount of coverage you initially purchase is enough to generate the lost income you will not receive from the pension if you were to die. If you have enough savings to replace the lost income after you buy the term insurance and invest the difference, then the strategy works. There are times, however, when the math doesn’t come out and taking the survivorship option is the best (usually due to health issues or other factors that may drive up the cost of insurance).
Working on creating a policy that works for you? Check out 5 Term Life Insurance Mistakes to Avoid.
The Suicide/Contestability Clause applies during the first two years of a term life insurance policy, and states that, during this time period, a company has the right to verify the information submitted in the application/underwriting process. If any information is found to be untrue or omitted and would have caused the company to decline the application, the company reserves the right to deny the claim. In this case, no death benefit would be paid and the company would refund the premiums paid.
This clause also states that if the cause of death is suicide, the beneficiary will not receive the funds of the policy – this still only applies during the first two years. After that timeframe has passed, this rule no longer applies.
View more answers to frequently asked term life insurance questions.
While no certification is required to resolve any identity theft issue, our recovery advocates are CITRMS (Certified Identity Theft Risk Management Specialist) certified through the ICFE (Institute of Consumer Financial Education). We also require all our recovery advocates to complete the Identity Theft Victim Assistance Training, sponsored by the Department of Justice.
These industry-specific certifications enhance awareness of the particular presentations of identity theft, thereby more effectively training the recovery advocates in detecting identity theft and fraud issues to help them better assist you in all matters, from detection to resolution.
Worried you may have had your identity stolen? Read more about common signs you may have been a victim of identity theft.
Jeff Zander discusses the benefits of term life insurance over cash value plans.
Learn more on why term life insurance is better than cash value insurance.
Hear Jeff Zander’s advice on shopping and buying term life, home and auto, health, and disability insurance.
We’re here to help! Please contact us if you have any questions about your insurance needs.
Identity theft is a serious issue that affects millions of people each year. While there is no way to prevent it from happening, there are ways to protect your family. Listen to Jeff Zander talk about identity theft and what you can do to save time and money if it happens to you.
Dave typically recommends that families carry 10-12 times their income in term life insurance coverage. This level of protection will generally allow for the continuation of the financial lifestyle for the remaining family members and allow them to pay off debts, fund education, cover the costs of unexpected needs, and pay for final expenses. The exact amount you should carry will, however, depend on your personal situation. For example, if you are single and without children, your primary concern would be the amount of debt your estate would be responsible for, which would likely require less coverage. If, however, you have young children and significant debt, this higher amount would be appropriate. Any of our team members at Zander Insurance can help you further determine your specific insurance needs.
If 10-12 times your income in coverage is not within your budget, Dave recommends lowering the death benefit to an amount that would still provide financial protection – something you can get by on for the near future while trying to address the reasons for the higher cost. You can also shorten the level guaranteed period to a 10-year term and increase the coverage amount. Your debt and savings situation will determine whether a lower face amount or a shorter term period is the most beneficial, cost wise.
Now that you have an idea of how much coverage you need – what about term length? Dave recommends a 15 or 20-year level term policy. This is a good amount of time during which you can pay off your debts and build your savings, decreasing your need for life insurance. By the end of that term, you shouldn’t need life insurance at all! That’s why term plans make the most sense: they are cheaper, and you only pay for them during a selected term – not your whole life.
This is why at Zander, we only offer level term life insurance plans. Compare term life insurance rates online or call us at 1-800-356-4282 to speak to a Guide.
Dave Ramsey never recommends keeping a cash value policy (including whole, universal and variable life), regardless of how long or short you have had it, unless you are unable to qualify for a new, competitively priced term life policy. Keeping such a policy just compounds the mistake further, as the idea behind cash value plans is to overcharge you by manipulating you into thinking you will need life insurance your entire life – and that’s just not true! Within 15-20 years, you should be at a point in life where your family has built enough savings to sustain themselves without a life insurance policy. This is especially true when you consider all the money you can save by switching to a cheaper term life policy. These are the only plans we offer at Zander, because they’re the only ones that make sense.
Once you are out of debt and have built wealth, the need for life insurance is eliminated – and there are so many smarter things to do with your money! If you do still need life insurance after 20 or 30 years (unlikely), you will still be able to get more coverage at a lower rate than a cash value type plan. You would be subject to re-qualifying based on your health, but that risk is better than purchasing a poorly designed cash value policy today and suffering from its effect on your other financial strategies throughout the same time period.
Dave has long recommended using the cash value in the plan to intensify your debt reduction efforts, help establish your emergency fund and then take advantage of better investment options. The savings you have in the cash value is typically earning a poor rate of return and it makes no sense to save money or leave it sitting while paying a much higher rate for credit card or other debt. The use of term life insurance is just one step in the overall process to get yourself out of debt and grow your savings.
Don’t let the fear of being charged a tax prevent you from cancelling your cash value plan. It is rare for a tax to be due, and when it is, it is only based on the amount in excess of the premium you have paid. Even if you do owe in taxes, the long-term benefits of switching to a term life policy far outweigh the risk. Learn more about the differences between term and whole life insurance.
Accidental death and dismemberment policies are a waste of money, and buying them is a huge mistake – especially if it is used as a replacement for life insurance. Zander Insurance does not offer these programs as an individual or add-on feature to any policy. Both Dave and Jeff Zander feel you should have the amount of coverage that your family needs, regardless of whether you die of an accident or sickness. The chances of a fatal accident greatly decrease as you get older, and these policies are just a very poor value. Americans have a one in five chance of dying from heart disease and one in seven chance of dying from cancer, whereas the odds are one in 36 for an accidental injury. It is gimmick insurance and takes advantage of people’s emotions. These type of supplemental plans are just a waste of money and siphons off dollars that could be used more effectively in your financial plan.
Dave recommends a 15- or 20-year term. The idea is that during that time, you greatly pay down debt and grow your savings, thereby reducing and eventually eliminating the need for life insurance altogether. It is okay to consider a 30-year term when you are young and starting your family since it allows more time for you to accomplish these goals – as long as the additional cost doesn’t put too much strain on your budget. However, as you get older, the cost difference of a 30-year term increases and does not represent as strong a value. As you get older, a 10-year term will likely work if you have eliminated debt but are still working on growing your savings to make sure your family’s financial lifestyle would not be drastically impacted by your death. The coverage you should carry may vary by what you can currently afford, but Dave recommends 10-12 tines your income. This amount is generally a safe bet, as it will allow your family to keep up their current lifestyle, pay any debts, fund their emergency and savings accounts, etc.
You can also consider “laddering” policies which means purchasing multiple policies to address the different time frames of your personal situation. However, the savings here is usually limited unless you are older or looking at high valued polices. We only offer level term life plans, as recommended by Dave Ramsey.