Financial guru Dave Ramsey has millions of followers and he provides common sense financial advice.

He absolutely abhors WHOLE LIFE INSURANCE. Whole life is definitely more expensive than Term Life Insurance. Therefore, he recommends “Buy Term and invest the Rest” in the market. On the surface that seems to make sense.

Whole life insurance policies are a type of permanent life insurance that provides coverage for the duration of the insured’s life. They come with a cash value component, which allows the policyholder to access money from the policy or borrow against it for life purchases, investments or in case of an emergency. They also earn interest on the cash value, but at a rate lower than what you could potentially make on other investments.

Now to understand why Dave Ramsey hates whole life insurance, you have to look at the way these policies are sold. Many agents will tell you these policies are the only way to get guaranteed life insurance coverage and that the cash value portion works like a savings account.

Yes, they do provide guaranteed coverage, but they may also carry fees that reduce any returns you may have earned. This means the money invested through a whole life policy grows much more slowly than it would through other investments. This is why Dave Ramsey doesn’t believe in whole life insurance policies.

There are a few flaws in his complete rebuke of Whole Life Insurance.

• The Wealthy have utilized whole life to build and maximize generational wealth for over a century.
  Rockefellers, Waltons, Ray Kroc, Walt Disney, James Cash Penney (JC Penney), & Doris Christopher (The Pampered Chef) all utilized Whole Life as an instrumental vehicle to drive their success & wealth.
• A properly structured, dividend paying whole life policy maximizes cash value. The money grows guaranteed, regardless of market volatility. This “equity” can be borrowed against at any time, no questions asked at a pre-set interest rate for life purchases, investments, emergencies, etc.
• The cash value continues to grow TAX FREE, even if you borrow against it. So it can make money for you in two places at the same time. That creates Velocity with your dollars.
• Less than 2% of Term policies ever pay a death benefit. Whole Life is a different story.

Dave Ramsey offers great advice, but he may be off base here. Ultimately, only you can decide what kind of insurance and investments are right for you. But no matter what you choose, we want to make sure you understand what you’re getting into before signing up for any policy.