Suze Orman encourages people to buy term insurance instead of whole. Do you know why?

Both Dave Ramsey and Suze Orman recommend that you buy term insurance rather than whole or universal life. If you watch (Suze) or listen (Dave) to their shows they explain why.

Long story short - you can be twice as much coverage for less premium if you buy term insurance. Then you take the difference in what you would have paid to purchase whole/universal life - put it in your mutual fund and with an average rate of return (such as 8%) you end up making more.

Whole life insurance is supposed to be life insurance with an investment componant. It was desigend so that life insurance companies could try and compete with mutual funds etc (investments).

As far as being an investment goes-- whole life is a lousy investment. You would do much better to invest in a good mutual fund.

And since the premium on whole life/universial life is higher than that of term -- the sales agent's commission is higher. That's why many investment advisors try to push you toward whole life or universal life. They get paid more for that one than they do for term.

Keep in mind- the purpose of life insurance is not to be an investment. It's to pay for your heirs and pay off your debts after you die. It's not meant to be an investment.

Personally, I agree with both Dave Ramsey and Suze Orman - that you sould purchase a good term policy and put the difference in a good mutual fund. This way - you get life insurance covareage and a better producing investment.

Whole life is usually marketed by the insurance companies as both insurance protection and an investment. Orman's position is that it is a lousy investment - keep your investment money elsewhere and just buy term insurance which gives you the most "bang for the buck" in terms of payout benefit.

I would assume that it's because Term insurance is HIGHLY profitable for companies and she probably is invested in those term companies.

Think about the money that a "Buy Term and Invest The Rest" company like PRimerica would make. You convince someone to pay say $30 a month for 10-30 years, then before they reach their years where they are most likely to make a claim they tell the people "you should cancel it before it gets too expensive" 30 years of premium coming in + zero claims going out on that policy = clear profit for the company.

It's interesting that one of Suze Orman's major sponsors is TD Ameritrade. Want to take a guess at how much term insurance TD bank has? ZERO. Want to guess how much TD bank owns in Whole life insurance? $845 million. Also interesting that her 'bosses' don't follow her advice either. Mr. Wright the vice chairman of NBC pays $506,000 annually on whole life insurance. So the people that actually employ and support Suze Orman don't even follow her advice.

Keep in mind that folks like Suze Orman, Jim Cramer, and Dave Ramsey are on TV becasue they are charismatic, outgoing and most importantly entertaining, not becuase they know what they are talking about. They are TV stars. People love seeing them get all worked up and whatnot on TV. Some of their advice is good, but a lot of it is very misleading. Bill Gates is a very very smart man...ever wonder why he doesn't have his own TV show? Because he's boring. If you do your homework, you can find TONS of resources that document Suze, Jim and Dave's screwups and contraditions in advice.

Buy Term Invest the Rest is a good strategy in theory and it works in soem situations, but it is not very practical for everyone and it should not be promoted as a one size fits all. Would you go to a doctor that presribed Advil for absolutely every single ailment you have? Probably not, why take advice from a one trick pony that recommends the same thing to everyone like your situations and goals are the same.

Don't always beleive what you see on TV: http://www.youtube.com/watch?v=tfSAhbxsUnU

MBRCATZ: I don't know what you are using to compare whole life to term, but it is no where near 1/10 of the price (not where I live anyways). Even comparing the best prices on the market in Canada for Term vs. Whole life is barely close to 1/5 the cost, let alone 1/10...that's not even factoring in how reputable or not some of these super cheap companies are. I would assume the ratio would be the same in most countries. Yes, term is cheaper, but when studies have shown that roughly only 2% of term polices actually pay a claim, how can that not be profitable for a company? I haven't seen stats on whole life but, considering whole life insurance does not expire and is far cheaper in the long run and in the older years, it gets cancelled less, so it would be more likely to pay out a claim. When Primerica can double it's profits from 2000-2004, I find it very difficult to beleive that term insurance isn't profitable. Please do a little more research before making a vague factless claim about something like that.

Because of two things:
1. Most people only have a temporary need for life insurance, not a permanent need.
2. The people who call Orman and Ramsey have major cash flow issues. The lower cost of term insurance helps them achieve other financial goals quicker in the short term, even if they do or will have a permanent need.

I don't think the stance of "always" buy term is the right one, but it is probably appropriate for their markets and the simplistic approach keeps their attention on other things.

Yes, because she's good at math.

When you run the numbers, whole life is just HUGELY more expensive than term.

**and for Chris - term costs about 1/10 what whole life does. It's not nearly as profitable for the insurance companies as whole life is.**

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