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“Middle class … for the rest of your life”

Ramsey is all about wealth-building and rising above your current financial station. He’s anti-debt and wants to make sure folks save enough for a rainy day or retirement without having to resort to credit cards. Nothing, he said in his rant, will keep you stuck like a whole life policy: “It’s a signal that you intend to be in the middle class and stay there for the rest of your life.”

He lays out the numbers: The average whole life policy, Ramsey said, earns a 1.2% return. And if you manage to somehow build wealth in it and want to use that money, you have to pay the insurance company interest to use it. Now you’re just losing money.

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High costs

Whole life insurance premiums cost more than term life insurance — which as the name indicates, covers you for just a set term in your life. Ramsey claims whole life can average 20 times more than term policies.

For example, where a $100,000 term life policy might cost $5 a month, a whole life equivalent would run you $100 a month.

And for the first three years of payments, the insurance company keeps every dollar you invest as commission, which means you won’t see any growth during that time.

More: Best life insurance companies of 2023

Low returns

To be sure, whole life insurance offers guaranteed returns. But even after investing for five decades or longer, those still average around only 2% or less. If you have the means to invest for 50 years, you’ll do better with stocks, mutual funds or real estate.

Even normally conservative CDs or savings accounts — especially today’s popular high-yield varieties — can earn you 4% or higher.

Consider, too, how life insurance policies work with inflation, which currently outpaces a whole life policy’s paltry returns. Even coming off its 2022 highs, the October 2023 U.S. inflation rate ran nearly double the common return of whole life policies.

More: Types of life insurance explained

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Lining others’ pockets

There’s nothing like watching your hard-earned money wind up in someone else’s pocket, right? Why should the money you intentionally invest to benefit you and your family upon your passing instead go to an insurance salesperson?

All insurance policies set aside a cut for sales commissions, but remember that whole life insurance takes 100% of your payments for the first three years — and the fees stay in place after that. It could take a decade or more before your cash value equals the amount you paid in premiums and fees.

As Ramsey grimly lays out, you’ll just see a bunch of zeros (and only zeros) on your investment’s cash value for the first few years.

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Chris Clark Freelance Contributor

Chris Clark is freelance contributor with MoneyWise, based in Kansas City, Mo. He has written for numerous publications and spent 18 years as a reporter and editor with The Associated Press.

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