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.
According to Dave, term life insurance is an immediate need. That’s why it’s not included in the Baby Steps. His advice is: if your death would cause financial hardship for your family, you need life insurance regardless of where you are in your financial journey. As you get out of debt you, are actually reducing the amount of insurance you need. That means the most essential time to have this protection is when your family in debt, thereby less capable to maintain their lifestyle if they were to lose your income. Keep in mind that you need less coverage as you age, as long as you are building your savings and paying down your debts.
Dave does not recommend AFLAC or any other company that sells these types of supplemental insurance plans. These typically include short-term disability, cancer policies, emergency accident and critical illness. By establishing your emergency fund, you actually eliminate the need for these supplemental plans and can use those premium dollars much more effectively. If you have 3 to 6 months of your emergency fund built up, you are self-insured against these smaller risks, which is a much smarter approach to these measurable events, rather than paying an insurance company for a benefit you may never need.
Remember - once you have established your emergency fund, all those premiums you were paying can go to other financial needs such as debt reduction and savings. If you use some of your fund, you can re-budget to help get it back to the level you need and then return to addressing your other financial priorities. The same concept applies to health insurance. If you have an emergency fund and quality health and disability insurance, you no longer have a need for short-term disability or cancer policies.
Dave strongly recommends that people 60 and older have long-term care insurance (LTC). He does not consider it a good buy or important to have prior to that time, especially if it siphons money away from more important financial priorities. It just doesn’t make sense to pay that cost if you still have debt, an insufficient emergency fund, are slacking on your retirement savings, or working toward other financial goals. Once you turn 60, you need to work this cost into your budget.
One of the primary reasons for LTC is that nursing home healthcare needs can financially drain a family’s savings and have a detrimental impact on your financial lifestyle. There are many companies that specialize in these types of plans, so shopping around can be very beneficial in getting affordable long-term care insurance. Coverage can be expensive, but there are ways to cut some corners and make sure that you are not paying more than necessary.
The length of the benefit period usually defines the difference between the short-term and long-term disability policies. Short-term policies, which Dave does not recommend, usually provide benefits during the first week of disability, up to a certain dollar amount, for a period of 13-26 weeks. Long-term disability plans typically don’t begin paying benefits until after the elimination period (typically 90 or 180 days after sustaining the injury or illness which caused the disability) and pay out benefits for a longer term, such as for 5 years, or to age 65. Dave strongly recommends long-term disability since our greatest asset is our ability to work and earn an income. His advice is to establish an emergency fund equal to 3-6 months your expenses and use that as a protective measure instead of buying a short-term plan. By having your emergency fund, you eliminate the need to pay month after month for a measurable risk, which allows you to use those premiums to help pay down debt and grow your savings.
No. Dave feels that Return of Premium plans (ROP) are just cash value plans in disguise. You overpay for the true cost of insurance, similar to whole life plans, but instead of it being for the higher cost of insurance as you get older, the ROP plan refunds the money to you if you outlive the contract. Just as with cash value plans, you could invest the over-payment yourself and do much better financially. Additionally, many companies require that you complete the entire contract before the refund is available. What happens if you no longer need the insurance? Many plans require you keep the plan until its expiration to get your over-payment back. What happens if you die during the policy period? You have overpaid for the coverage, and all your beneficiary gets is the death benefit. Not to mention you have no access to the over-payment during the terms of the policy. Overall, it is an emotional gimmick that many people consider since they do not foresee their own death. Dave’s advice is to get the term life insurance you need at the best rate possible, then concentrate your efforts on more important financial matters such as getting out of debt and then building wealth. Get more information on the benefits of term life insurance.
Zander only represents the country’s top-rated companies – those that have achieved high ratings with both AM Best and Standard and Poor’s. The minimum rating level of a company we will represent is “A,” which is an “Excellent” rating, reflecting a company’s financial stability and its ability to meet policyholder obligations. We have been Dave Ramsey ’s endorsed national term life provider for over 20 years, and he has entrusted us to make sure the companies we represent offer his listeners the most competitive pricing and are top-quality companies. We take this responsibility very seriously. Just because you are not familiar with a particular company should not keep you from considering them.
As an example; Dave and I have our term life policies with Banner, Midland, Protective, Prudential, and SBLI – some which you may have heard of and some not, but all are leaders in the business of writing term life and specialize in certain sections of the market. Find out which life insurance company is the best option for your family.
Accident policies are typically known as “indemnity plans,” which simply pay a fixed amount of benefit if you become injured by an accidental event. They have limited value and are a poor substitute for disability insurance.
A long-term disability policy is much more expansive, covering income loss by either accident or sickness, which greatly increases the value of the plan. In addition, a disability plan is typically broader in the situations that you are covered for, and the benefit is tied to your income.
It is recommended that each spouse participates in an ID theft protection plan since both have separate identities that can be stolen. Identity theft is much more than financial fraud, and can also include medical identity theft, social security fraud, IRS scams, insurance, utility, and employment fraud, and more. Since both of your personal info is valuable and can be acquired in different places, it is advisable for each family member to be protected – that includes children. Our plan offers a family option that includes comprehensive coverage for children up to age 18, with limited benefits available for adult dependents.
It is generally not advisable to list children as the primary or secondary beneficiary. One reason is that, because minors cannot directly receive the proceeds of your policy, the state becomes responsible for appointing a legal guardian if you haven’t done so (which takes a lot of time and money), and that guardian will make the call on how the money is spent. Another reason is that, once your children turn 18, they will receive whatever lump sum of benefits were remaining from the death benefit. Most advisers (including Dave), do not recommend providing a child with large sums of money at such an early age. You can avoid this situation by setting up a trust within your will -typically referred to as a testamentary trust – which does not add much cost since the trust is not actually established until your death. This directs the executor of your estate to set up the trust, along with certain limitations on when the monies can be accessed and how they can be used. Get answers to other frequently asked questions.
Dave does not recommend any type of prepaid legal services, as he does not feel there is any sense in paying a monthly fee to help offset future legal costs that, for many people, never occur. He would rather see you use that money in your debt snowball, rather than having it siphoned off by these supplemental insurance type plans. If you do have a legal need such as a will or other legal documents, Dave has specific recommendations for that. Otherwise, legal expenses should be covered by your emergency fund or your monthly budget.
Worried about legal expenses incurred from identity theft? With Zander Identity Theft Solutions, you don’t have to.