In this video, we are reacting to the one and only Dave Ramsey arguing with a whole life insurance salesperson. Dave Ramsey gives three reasons why life insurance is horrible, and I'll be addressing all of those and more. I'm also going to give my two cents on if I would give different advice to the caller that Dave Ramsey gave, which may surprise you. Here's the clip. My name is Elliot. I graduated from a top 20 business school in college. After college, I sold triple net investment sales for about two years. For the last year, I've been a whole life agent. that in Louisville we partner with many different working class companies. For discussion purposes... It takes a lot of bravery to just go right in with that on with Dave Ramsey. So props to you, man. You know, the average American retires at about $5,000 in their bank account. Personally, I tell my friends and family to cash out their whole life policies. And the way I pitch whole life, it's not necessarily as an investment vehicle, but more so as a savings or a savings account, but simply as insurance that accumulates cash value and a paid up coverage over time. In my eyes... I believe I'm leaving my members better off than before they talk to me, but why am I doing something so horrible in your eyes? And I just want to say, number one, love how he framed that to say, like, he was very upfront. He wasn't trying to hide. I think one of the things that Dave Ramsey can sniff out is people that are like, you know, they're hiding that they're a life insurance agent or something. And he can kind of tell based on how they're asking the question. He's like, Elliot's very upfront, and then he also is saying, why am I doing it? I respect the question. Props to you on how to call in 101. Because the product is crap, not because you're a bad guy, but the product that you're selling. You're trying to do a good thing, Elliot, and thank you for doing that, and I appreciate your heart. But basically, I mean, it's a math problem. So if you take a $200 whole life premium per month, I can buy the same amount of term insurance on that 30-year-old. for about $10. So the other $190 would go towards cash value in the typical policy of the top 10 stock companies out there, okay? That's the actual data that's out there in today's market. And so if I'm paying $190 extra for the life insurance in order to create a savings account, that's not the end of the world. But it's the rules of the savings account that are the cash value. We'll call it savings. You said we're using it as a savings vehicle. That are the problem. The typical whole life policy accumulates zero cash value in the first three years. Have you noticed that? Yeah, I've noticed that. Okay, so it's called what you and I, people in the financial industry like you, me, and George, we would call that front-loaded commission. Agreed? Yeah. So I have a savings account that I'm putting $190, in my example, in per month, and the first three years, I get zero. It 100% goes to the bank, goes to the life insurance company. Okay? After that, the typical whole life policy accumulates at a 1.2% rate. Some of them go as high as 3% or 4%. Some of the universal policies will go as high as 4% to 7%. Some of the indexed universal policies that are indexed to like an S&P. After fees, we'll go as high as 7% or 8%. It's wild that Dave Ramsey gives IULs a lot more credit than maybe I would even give credit to, but I will address both the no cash value in the first couple of years and the rate of return. Return, okay. The typical basic whole life policy, not a universal policy, is accumulating at under 2%. So I have a savings account that for the first three years I put money in it. They keep my money. After that, when I finally start saving, it accumulates at 1% to 2%. And here's the thing. Okay, now. Now, what would you say, Elliot, in your case, the typical size face value of policy that you sell is? What's a normal policy for you? You know, it's going to vary from someone who's 18 to, you know, 70. Okay, so you're south of selling. Who's your typical customer? Let's say you had a 30-year-old. Yeah. The typical customer is Joe. He works construction. So he's probably not doing a $200 a month premium like I'm using as an example then. No, no. For me, I've never sold a $200 a month premium policy. So probably more like $100. On average, it would be more like between $50 and $70. Okay. And so these are $50,000 face value policies, right? Yeah, or less. Okay, so they're small policies. Would you agree with me that a guy that makes $40,000 a year and dies, $50,000 is not enough to take care of his family? Correct, it's not enough to take care of his family. If you wanted to replace a $40,000 a year income, you would need north of $400,000 invested at 10%. Correct, and I would say it's better than nothing. Better than nothing, but for the same money he's spending, he could have bought the right amount of insurance if he bought term. Right, and the funny thing about term, too, is I talk to these people when they hit the age of retirement, and they're like, yeah, I paid him this life insurance my whole life, I never used it, and they're so upset with me about it. No, they're not upset with you. You haven't been selling long enough to meet anybody that kept it until retirement. You just started. But they could be upset with the industry maybe. But I haven't had that problem because here's the thing. If you take the $10 a month and you bought let's drop it to $5 a month and call it a $70,000 policy. Let's go back to our savings account. I was using $190 a while ago. Now I've got to drop it down to about $95 because I'm $100 in my policy. Now, if we're going to do that, $5 is covering the insurance. $95 is going into the savings program. Zero for the first three years. After that, it's accumulating at 2%. And after that, if it builds up a cash value of $5,000 or $10,000 after 10, 15, 20 years, right? Yeah. Okay. They die with a $60,000 whole life policy with a $15,000 cash value that they paid extra to build the cash value with a $60,000 whole life policy. Would you agree with me that the insurance company is going to send them a check for $60,000? Only to $60,000. Exactly. So you paid for a savings program, and when you die, they keep your money. Yes, yes. Nice parting gift. That's why we think it sucks, man. It's zero. 100% is kept for the first three years. After that, it's accumulating at a lousy rate, and when I die, you keep my money. I paid extra beyond term to get a whole life policy that has a savings program in it, and my savings program, when I die, doesn't go to my family. It goes to the insurance company. If I opened a bank with those terms, the bank would go broke. No one would put savings in there. so it's not enough to actually cover and replace income and you don't actually get the cash value when you die i'm confused the only thing that i will say i think a problem that is it is helping is that people do only retire with about five thousand dollars in their bank account well that's because they bought this crap they didn't have any money to invest because they gave it to you put the 95 in a roth ira they would retire millionaires yeah but i don't think i'm putting a policy in place where it's like that uncomfortable where they didn't have enough money to invest on Why don't they use the money to invest wisely? If I showed them an investment calculator and I put the same amount in there, they would be flabbergasted and they'd be running far away from this. If I bought term life insurance and wasted all that money for my whole life and ended up a multimillionaire as opposed to an insurance company keeping my savings that I paid for, I don't think anybody's going to be mad about that, Elliot. It's like telling someone, Dave, the show is great. In season 12, it gets good. You can get through the first 12 seasons of the show, I promise. It'll be mediocre at best. I'm not binging that. No, thank you. Elliot, I think you're probably a good guy, but I think you're probably, if you keep doing math on this, you're going to probably end up doing a different type of financial planning that's more beneficial to the folks you're trying to serve. All right, so the first thing I want to say is I really respect Elliot's approach to Dave Ramsey. I just, like, I'm not wearing a hat, but hats off to you, Elliot. I also respect, Dave Ramsey, your response to this Elliot guy. And I think it's a lesson 101 that even though you disagree, even though, you know, Elliot's coming into the lion's den, he could easily have done what so many people, like, pretend that they're a consumer and then that they're actually a life insurance person and Dave Ramsey calls them out or, like, tries to catch Dave Ramsey in a lie. Like, he's just really— being authentic and saying like why am i ripping people off in your eyes and i think what that does from a psychology standpoint is dave ramsey's almost like he's he's like now on the side of elliot to be like hey listen you're like you're not ripping people off but here's like the product is crap and so dave ramsey's already saying like hey you're not a bad guy and sometimes dave ramsey in the past is can can come across as like really in your face and it's that passion but a lot of times it's because people are baiting him or coming right at him and so this is lesson 101 to how to communicate with people that might not agree with you. And Elliot, you get 10 out of 10 for that. Now, the other thing I'll say is just because people are making a bad decision doesn't justify doing something that's not great for them. So the example is when Elliot was like, well, people only have $5,000 in retirement. Isn't this better than nothing? And while that could be true, like let's just play that out. It could be true that this is better than nothing. I think if you're in a space or if you're... using that to justify why someone's doing something with you, like this is better than them not meeting me is something really sad and something that I would, I would hope that would be convicting for you. If this is, if you're just, if you're just better than nothing, you know, we should be striving for what's the best scenario. So just because you're using a stat to say this, this many, this, these people are messed up and this is better off than the average. I don't, I don't want to be average. I don't want to do something that's like kind of better. I want to do the best scenario for me. We always talk about efficiency, and efficiency is removing any friction to get to your desired result. And I think there's something really powerful about identifying what do you want and then figuring out the best way to accomplish that. And when it comes to your finances, that's huge, but when it comes to your life, that's huge. And so that's one of the things that I just want to address, that we should never be using that argument. And when anyone tells me that this is better than the average, it doesn't move the needle. In fact, it turns me off, and so I can resonate a lot with when Dave Ramsey pushed back. So Ramsey gives three reasons why he hates. whole life insurance. And the funny thing about this is he uses data from top 10 stock companies, which if you're at all, like if you look at anything permanent life insurance, you'll see that some of the best permanent life insurance products and companies are not stock companies, they're actually mutual companies. And so that was one of the things that I would just, I find that's interesting that he's using data from stock companies and anyone that's going to, no one that I know that is like, yeah, stock companies are the best whole life carriers. and a lot of that A lot of people wouldn't even say stock company is the best IUL or variable carriers. And so that's just two cents before we even get to the three points that Dave Ramsey makes. So Dave Ramsey, first point, he says, typical whole life provides zero cash value in the first three years. That's point number one. Point number two is average whole life policy accumulates 1.2% return. And then he goes on to saying some go as high as 3% to 4%. Appreciate that. And some, if you use like IULs and some other products. anywhere from seven to eight percent after fees now I cannot believe I'm saying this. I think Dave Ramsey is more generous than I would be over a long period of time with any insurance product. I would not even feel comfortable doing that. Yes, could some people with private placement or variable life insurance get that return? Sure, I wouldn't feel comfortable saying that on video. And so I just want to say props to Dave Ramsey for at least acknowledging that there's some that go higher. But I think his same point is these are all lower than what you could invest if you were investing in an alternative. a mutual fund. And then the third point that he makes is that your face amount is the face amount and they keep your cash value. So they almost steal your cash value upon dying. And you can understand where that would be frustrating. And so also what I'll say is if Dave Ramsey was accurate on all three of those points, I, for most cases, would 100% agree with Dave Ramsey in most cases that life insurance, permanent life insurance should not be used. I just want to be like very upfront from day. If you're get zero cash value in the first three years, you're only earning one or less than 2%. And your face amount is stagnant, doesn't increase. And they, and they steal your cash value when you die. Yeah. I, I would, I would only say that these would, this, this product would make sense if you're like super rich and you're trying to still get arbitrage on, on dying in a state state planning. Like I would say for most people, and I, I I would assume that many of you would agree in the comments. You would say, yeah, I would agree with Dave Ramsey. Now, I just also want to point out that we make content a lot around life insurance, and I make a lot of videos. I've made a lot of videos even around this topic with Dave Ramsey. And the policies that we set up, and a lot of them vary depending on who's asking us and what we're trying to accomplish, but almost every policy that we've set up has very early cash value in year one. So instead of getting zero cash value in the first couple of years, first time funding, you're getting anywhere from 60, 70, 80, maybe up to 90 plus percent available in year one, radically different than most insurance out there. In year two, your cash value is in most cases increasing by more than what you put in. And then we're looking at break evens. That means you have more money than what you've put into this insurance product anywhere from year four to seven. And so I just want to be upfront that. The life insurance policies that we're setting up, that we're talking about, is radically different. That's number one. Number two is we look at long-term internal rate of return. This is the long-term value or growth rate. Our policies are getting anywhere from maybe like 3.5% on the low end after fees, commissions. Like this is internal rate of return is like the purest way to measure just a rate of return from 5% to 5.5% on the high end. Now, I want to address one thing that that could be conservative. depending on today's interest rates, or that might be somewhat accurate, but we're still like, it's still projecting with very low interest rates. That's one thing that makes life insurance unique. And so that's the IRR growth. If you, if you put the taxable equivalent to that, that could be anywhere from five to 9%, depending on your tax situation. So again, I will, I will, I will say this and admit this, this is still going to underperform many investments, but it's a whole lot better than, than one to 2%. The third aspect is our face amount increases every time we fund the policy. So what do I mean by that? If I get a death benefit, let's say a million-dollar death benefit today, and I continue to contribute, not only am I getting early cash value and it's growing a lot more than the average life insurance, but the death benefit is also increasing, and it's increasing by more than what I'm putting in. So when Dave Ramsey says, when you die, they just pay out the face amount and they keep your money, well, that technically could be true in some scenarios. If the face amount is growing by more than what I'm putting in, then by definition, that point is just void. And so while that may be true in stock, whole life insurance, in the insurance that we work with people and the insurance that we look at, even if it's not set up super, super great, in a lot of cases, the death benefit is increasing by more than what you're putting in. And so that point, I'm not going to say it's outdated, but it is not a valid point for many. um, life insurance strategies of people that are really, um, knowing what they're doing. And you don't have to know a ton to get your death benefit to increase by more than what you put in over time. Number four, and this is, this is a big one because a lot of times when we're just talking about life insurance, we're just talking about the rate of return. And we just like, we just compare it to a savings account. And that's something that like, I've done a really poor job when I first got started because I just saw life insurance as like a better savings account alternative. But like, there's so many other benefits that life insurance gives you. fact that it's safe, the credit protections, the fact that it has a death benefit, the fact that it has living benefits, the fact that it has tax benefits, the fact that it has different creditor advantages and benefits. There's a lot of other benefits to life insurance, and the more that you learn about the uses and how it can enhance other aspects, the more optionality it gives you and the more jobs it can do for you, not only will enhance your portfolio, but can enhance your life. And then the fifth thing that I will just point out is We never talk about life insurance as an investment. And so if someone is saying that this is going to be better, a better investment and downplays investments, I would. proceed with caution because I just don't think that's a great way long-term to talk about insurance. And for those of you that know, I've called it the and asset. I think it's an investment enhancer. I think that it could be an amazing bond alternative. I think it could be a great thing as a part of your portfolio, but I don't necessarily think it should be the thing that replaces or is the end-all be-all. So those are the five points that I want to make. So with that, do I agree with Dave Ramsey when it comes to his advice that he gave Elliot? I, drum roll please. 100% agree. with what Dave Ramsey said, even if this person was calling me, and even if this person had the same access to policies that we have access to that we do every single day for clients, it would be hard for me to say, yeah, let's put $50 a month or $100 a month. Let's have them do something like this. No, you could say that this person's way better off. You could easily say that. And this person's way better off than the life insurance Elliot is. potentially selling them. But you could still say that, like, my question would be like, what's their scenario? And I feel like, I feel like just selling like $50, $100 policies with small face amounts, like we're not, I feel like we're not addressing the real issue. We're not addressing the real, like, what's the goal? I feel like it's one of those like financial junk drawers where you open up and it's like, yeah, you have a policy here, you have a policy here, you have this investment, you have half a Bitcoin over here. And you're just like, What's going on? It doesn't feel very united, and I think that's partly why insurance salespeople can get a bad rap is they're selling you a product. And it could even be a good product, but it may not mix in with the whole strategy, which is important. Again, this is not a pitch for better wealth, but I think it's important whoever you work with to make sure like how does this insurance integrate with my other portfolio, with my other strategy to make sure everything is better off. And I think it's really important. Hey guys, I just want to interrupt real quick. If you're watching this and have an indexed universal life policy, a whole life policy, have any type of insurance policy in general, and you're like, I want to know if I'm on the right track. I want to know if this is set up properly. We at Better Wealth want to help you. We want to give you a free policy analysis and show you, are you on the right track? Is there some things that you potentially could be doing better? And so we have a link down below that you will have access to. We would encourage you if you have a policy. and you want to see if you're on the right track, check that out. And if you're someone that's watching this and you're like, I want to talk to someone, maybe setting up a policy for myself, or I have questions, we would love to serve you. You can also see a link to have a call with someone on our team. Back to the episode. When does whole life when set up needs properly make sense? There's really two scenarios that I want to walk you through. Scenario number one is someone that is doing the typical traditional investment route. They're putting their money in different investments. They want to be able to retire and get a stream of income. The second scenario is someone who's an entrepreneur that's not necessarily taking the typical investment route they want to bet on themselves and their activity and i'm going to walk through where life insurance could play a role in either one of those scenarios let's talk about scenario number one you are someone that wants to invest your money put your money in a 401k roth ira brokerage account your thesis is i'm going to invest my money i'm going to get to a point my nest egg is going to be at a certain point it's going to get income it's going to peel off income and i'm going to be able to with... 3%, 4%, 5%, maybe even Dave Ramsey could say higher than that. But I think most people would say 4% to 6% would be on the high end if you do good planning and you're going to get that stream of income. The question that I would ask is, does life insurance enhance your current and future benefit by having life insurance as a part of that scenario? So I would say, are you planning when you look at your retirement plan, are you planning on using bonds? Are you planning on having long-term care insurance? Do you see the benefit of life insurance? Let's look at estate planning. Let's look at all these, and let's put it into a plan, and let's ask, I want a future cash flow stream that's better, that's more confident. And I also admit some people care nothing about estate planning and legacy. Some people care a lot about estate planning and legacy. And so with all of those, I would ask the question, what gets me a better return? What gets me a better outcome? What gets me a better return on cash flow? And that's what I'm optimizing for. And what you'll find is a lot of planners will say that life insurance as a portion of your portfolio can actually enhance your cash flow. Like I have plenty of videos. There's a lot of experts out there that are saying that. And so we're not crazy by saying life insurance, when set up and used properly, could be a better bond and could, as a result, give you better income. Don't just trust my word for it. Ernst & Young literally did a study and said that life insurance and investments give you a better result than just one or the other. And so That is one of the reasons why if you're going the traditional route, why you may want permanent life insurance as a portion of your portfolio, not because it's a better investment, but because together it's going to give you a better income because it can be a volatility buffer and give you other options. So that's number one. The second scenario would be you're an entrepreneur or you're an investor that is investing in like alternative investments or like real estate and all. And you have money that you store in like a savings account or a high-yield savings account. And you then take that money and invest in businesses and you want access to capital to be able to deploy to invest in other things. You can make the argument that entrepreneur A keeps their money in a savings account, high-yield savings account, keeps their money. withdraws that money and makes moves and investments and all. And when they make more, they put it back in their investments. And then maybe over time, they diversify into other investments. But you could say like person A is using a high yield savings account in short term, really, really, really great. It's liquid. Your investments in your business are doing well. And for the most part, like that's what most entrepreneurs do. You could also make the argument that if an entrepreneur knew how to structure life insurance and get a lot of early cash value and get all the benefits, the protection, the creditor protection, that some of the tax benefits and all. You could make the argument that instead of putting their money and storing it and using their money throughout their life in a high-yield savings account, that they should put a portion of that or a large portion of that into a life insurance policy. Yes, in the short term, in the first couple of years, you have less money than what you do in a high-yield savings account. But over time, you're literally getting a greater, not just return on your cash, but return on many other benefits by having life insurance at the foundation. but you're also being able to use that cash value to invest in real estate or business and all. And so the idea would be you're still making a bet on yourself. You're still investing in businesses and real estate and all, and you're getting the long-term benefit of the insurance versus the long-term benefit of a high-yield savings account. So those would be the two scenarios that I think through is like when I'm talking to someone, what's their thesis and how are they buy and hold kind of deal? Okay, does life insurance enhance their ability to create future cash flow? If they're an entrepreneur or investor, does life insurance play a role to store and use their money? And the benefit is you could be in scenario number one, you could be buy and hold, and you may have a change of mind. Life insurance might be a way more efficient way to access that money and vice versa. You might be an entrepreneur that's doing your thing, you might exit, and now your life insurance becomes the bond portion of your other investments. There's optionality and flexibility to both of these, but those would be my two cents for those of you that are asking, all right, Caleb, give me your framework of how you would blend in life insurance to a caller. So in summary, Elliot, you did a great job. Dave Ramsey, I always appreciate your candor. And even if I don't always agree, appreciate how sharp you are on the call. Your points that you make, I think, are super valid. I think I also would point out that not all life insurance is that way. And when set up and used properly, it can be a... way greater product than what you're portraying. And even with that, I think the Elliot's of the world and the people that he's serving are not better off when it comes to life insurance because it feels very financial junk drawer. And so I think it's hard to even feel good about any type of advanced planning when you're at that level. And there might just be some, sometimes simplicity is key. And so I would just, I would just default to whether it's a seven baby steps or something simple. But when does life insurance make sense? Well, it can make sense if it can enhance your future cash flow or give you a better long-term place to store and protect and grow your money. For more videos like this, We'd love to hear your thoughts in the comments. We'll see you on the next video.
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