For almost 15 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. Over the years I have responded to thousands 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 are surprised that my advice 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.
The answer to this question is an emphatic NO! The Insurance Industry has done an excellent job over the decades creating and reinforcing the concept that you need Life Insurance for your “Whole Life”. Hence the name of their most popular product. The reality is that you need Life Insurance for a period of time that your family cannot maintain their financial lifestyle due to a lack of savings or debt. By purchasing Term Life Insurance , with rates locked in for the time period that reflects the risk related to debt and savings, you are able to free up funds that can be used to pay down debt, establish your emergency fund and grow your savings long term. It makes little sense to overpay for a product now (Whole Life) so you can have protection in later years when through a proper financial strategy you won’t even need Life Insurance. You are paying higher interest rates on credit card and other types of debt than you receive on your cash value savings within a Whole Life plan which makes the extra expense even more difficult to make financial progress. Remember as you are attacking debt and increasing your savings you are on a path to reducing and eliminating your need for life insurance all together so in the future those funds can be used more effectively through other investment options. There is no financial justification of spending dollars on a product you no longer need just to get a certain rate of return. The expense of the insurance draws away from the true investment value you receive which is poor to begin with. In addition, since your savings and emergency fund are established any final or burial costs should be paid from these funds since buying Life Insurance for these known expenses is also a waste. Click here to learn more about the debate of “Term vs. Cash Value” plans.
There are many elements to the new federal healthcare law, known as the Patient Protection and Affordable Care Act (PPACA) and, in some cases, the final regulations have not been released yet by the Dept. of Health & Human Services. Many changes have already occurred, such as Health plans no longer having maximum lifetime benefit limits, mandatory preventative care services and the inclusion of dependent children in plans up to age 26. However, the most significant changes go into effect 1/1/14 and includes what has been called the “individual mandate”. This requires most consumers to purchase health insurance which meets a benefit standard set by the Federal Government or be subject to a penalty.
If your Employer provides Group Health Insurance benefits, it is likely that your plan will meet the mandate requirement since there are guidelines that Employers must follow that are based on benefit design and affordability or they would be subject to penalties. If your Employer does not provide Health Insurance, then you will be required to purchase a plan and provide proof of coverage to avoid penalties. Your Employer is also required, if offering a Health plan, to have the Employee contribution for single coverage not to exceed 9.5% of their wages or they could be subject to penalties.
Plan options for individuals and small businesses are still being developed but PPACA requires the establishment of Health Insurance Exchanges in each state that will provide an outlet for individuals and families who do not receive benefits from their employer. Currently there are four plans expected to be offered and these will meet the requirements of the individual mandate.
As of 1/1/2014 Insurance Companies can no longer limit, exclude or deny coverage or charge higher premiums on pre-existing health conditions so, access to a plan is not limited any longer by your health. In addition ACA establishes subsidies to help individuals and families afford this expense. The subsidies vary by income level and are intended to help those between 133%-400% of the poverty
level limit their costs to 3-9% of their adjusted gross income. The 400% level presidents a family of four earning approximately $92,000 per year.
There are several other elements of PPACA going into effect 1/1/2014 with many provisions effecting Employer plans. You can visit www.healthcare.gov for more details. We will update this posting as more information is made available.
Thankfully we have only read about this experience and never had one of the companies we represent go into bankruptcy or insolvency which is the term used in the Insurance industry. If an insurance company goes bankrupt or is otherwise unable to pay its claims there is a safety net in each state known as a Guaranty Fund which works similar to the way the FDIC protects deposits in banks. Each state charges Insurance Companies a tax on their premiums that goes to an insolvency fund that would pay claims up to a certain state limit if the company was capable financially to do so on their own. The company is taken over by the Insurance Department of the State they are domiciled in and goes through a period of rehabilitation. This generally involves the Insurance Department reorganizing the company and in most cases finding a new company to buy the assets of the failing company. If the assets being bought do not generate enough to cover the liabilities of the company, then the Guaranty Fund makes up the difference and, in most cases, the insured person is made whole and their policy or claim protection continues. In the event that no buyer is found, then the company’s assets are liquidated and the Guaranty Fund will provide protection up to the state limit for those with a pending claim or outstanding premium. This is a very rare event and the advantage of term insurance is that you do not have a lot of money “invested” in a failing company such as with a cash value type plan and you could simply apply elsewhere. In short, it is definitely an experience to avoid but having a Term Life plan does minimize some of the complications.
If your employer is paying the cost of your life insurance plan then it is only to your benefit to accept it. If you have to incur a cost then you certainly should compare it with the cost of the other plans outside of the group. Many times a group plan can be easy to enroll in but the costs are actually more expensive depending on the overall age of the group. Even if your Employer plan has cost benefits, Dave feels that you should have no more than 50% of the coverage you need through your employer group plan. This is because most plans are not portable. Therefore, if you leave employment you will either lose your coverage or have to medically re-qualify at a time when you need the coverage the most. If your plan is convertible, in most cases it means you can take it with you, but have to change to a cash value plan, which Dave is adamantly against and should be avoided unless you cannot qualify for a Term Life plan individually. Additionally, many group plans also have benefit reductions as you get older, usually dropping the benefit coverage when you reach age 60 or older. Though employer group rates may be lower, the pricing of these plans ten to only be guaranteed for two year periods compared tot he level term plans Dave recommends of 15 or 20 years. By visiting our website you can compare rates online or call us toll free at 900-356-4282 for personal assistance.
This approach is typically referred to as Pension Maximization. This is done many times 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 he/she is 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. The analysis really comes down to the numbers. If there is enough savings to replace the lost income after you buy the term insurance and invest the difference then the strategy works. There are times though because of insurance, based on health issues etc., or the rate of return of the investments that the math doesn’t come out and taking the survivorship option is the best.
The Suicide and Incontestability clauses are standard sections of all Life Insurance policies regardless of the company you select. These are mandated by state laws in many cases or have been applied over the years due to prior court cases. The Suicide clause basically says that if you were to commit suicide during the first two years of the policy being in force then the company has the right to decline to pay the claim and has to return the premium paid. This is because a suicide within the first two years is considered to have been contemplated as the reason to buy the policy and the company should not be penalized for someone who planned to commit this act. After two years the contemplation of suicide has been determined by the courts to no longer apply and all companies must pay the death benefit.
The Incontestability clause relates to those individuals that misrepresent or lie on the application about issues that would have caused them to be declined if that information had been properly disclosed. The same two year period applies so, if a policy remains in force past that period, a company can no longer use the fact that inaccurate
information was provided during the underwriting process to decline to pay a death claim. Once this period expires then the company typically does not have recourse and the beneficiary would be paid the death benefit. This is the reason why companies often do a brief investigation on claims that occur during the first two years especially if the death was related to an illness vs. an accident.
While no certification is required to resolve any id theft issue, the Recovery Advocates are CITRMS (Certified Identity Theft Risk Management Specialist) certified through the ICFE (Institute of Consumer Financial Education). In addition, all Recovery Advocates are required 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 and fully assisting their clients from detection to resolution.
Dave Ramsey recommends that a stay at home parent carry life insurance since they provide important and valuable services in the household such as childcare, housekeeping, food preparation, transportation, etc. If they were to prematurely die then the household would experience an increase in expenses that can be significant. Typically an amount between $250,000 to 400,000 is the range he recommends. You can purchase a 15-20 year guaranteed level term plan that reflects the age of your children. If your children are younger then the longer period and higher amount would apply. If your children are older and more self-dependent then a shorter term period, which will save you money, can be considered.
Jeff Zander discusses the benefits of Term Life Insurance vs. Cash Value Plans.
Click here to learn more on why Term Life Insurance is better than Cash Value Insurance.
Insurance is one of those topics that no one likes to talk about but we all need it! Jeff Zander talks about the best approach to shopping and buying insurance such as life insurance, home and auto, health, and disability insurance.
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