Money Management

Whole life insurance promises to build cash value and pay a death benefit. Dave Ramsey lays out the truth about whole life. Find out why he isn’t a fan. 

I have been known to disagree with financial guru Dave Ramsey — on more than one occasion. However, when Ramsey calls whole life insurance “One of the worst financial products alive today,” I’m with him 100%. In fact, I’m the amen chorus, like those little old ladies I marveled at in my youth, the ones who sat in the front pews at church, enthusiastically seconding everything the preacher said.

What is whole life insurance?

To understand what whole life insurance is, it’s helpful to understand term life insurance. As the name suggests, a term life policy lasts for a specific term. For example, if you purchase a 20-year term life policy and continue to pay the premiums, you’ll have life insurance coverage for 20 years.

With a whole life policy, you’re promised life insurance for the remainder of your life as long as you continue to pay the premiums.

How it’s sold

When a person attempts to sell you whole life insurance, they’re passionate about the product for good reason. If you buy, Insurance Business Magazine reports that it’s common for an agent to receive more than 100% of the total premiums for the policy’s first year. That payday provides an incentive for insurance agents to push a product that is, at best, financially questionable. Here are some of the selling points agents use:

What they say: “You’ll receive lifetime coverage.” What they imply: “You surely want to leave money to your children and grandchildren.”What they say: “Your policy will build cash value.” What they forget to say: “This is a complex contract, and chances are it will take you years to figure out how little money goes into your cash account.”What they say: “Your premiums will remain the same your entire life.” What they fail to tell you: “You’re paying up to 20 times more for a whole life policy than you would for a term life policy.”What they say: “The death benefit is income-tax free, which will make your beneficiaries happy.” What they don’t say: “If you run into financial trouble in your old age and can’t keep up with the expensive premiums, your policy will be canceled, and everything you’ve paid into it will be gone.”

Being an effective salesperson requires a special gift, which in itself is a wonderful trait to have. However, due to the hefty chunk of cash the agent will put in their bank account if you sign on the dotted line, it’s tempting for an agent to gloss over the ugly parts of a whole life policy.

Amen, brother Dave

I could list all the things about whole life that I find scammy, but Ramsey did a bang-up job listing those things on his show. Here’s what he had to say about it.

Whole life policies have a horrible rate of return

The sales pitch promises that a portion of your money will be invested and, over the years, will swell, providing you with a nice nest egg. According to Ramsey, the average whole life policy has a 1.2% rate of return.

Compare that to 10%, the average amount the stock market has returned over the past 50 years. Even though there have been bear markets, bull market years have more than made up for it.

Whole life insurance is expensive (very expensive)

Ramsey tells his listeners that for the first three years, the cost of a whole life policy is 20 times higher than a term life policy. In other words, if you’re paying $100 monthly for a whole life policy, a term life policy with the same death benefit would cost $5 per month.

After the three-year mark, you can expect to pay up to 17 times as much for whole life.

The promise of building a cash account is a joke

Due to the complex nature of whole life, it’s easy to become confused about how much of your money is actually building cash value. Ramsey says that you can expect to build zero cash value in the first three years of owning the policy. Your premiums are divided, with part going toward the death benefit of your policy and the rest to the insurance company and agent who sold you the policy.

They expect you to pay them interest?

A huge selling point for agents is the fact that you can eventually borrow money for the cash that builds up in your account. What they do not always mention is that you’ll have to pay interest on any money you borrow.

That’s right, borrowing your own money means paying the insurance company interest as though it loaned you the money.

What happens if you miss a payment?

It’s not at all unusual to run into periods of financial hardship, and if you have to choose between keeping the lights on in your home and paying your whole life policy, you’re likely to opt for having electricity. Here’s what happens if you miss a payment:

If there’s enough cash value built up, the insurance company may use money from that account to pay the premium.If there’s not enough cash in that account to cover the premium, your policy will lapse.Once the policy has lapsed, the life insurance benefit ends.

The insurer gets another big payday when you die

Ramsey appears to become a bit hot under the collar as he describes what happens if you die with money remaining in your cash account (and I cannot fault him).

Let’s say you’re 65 years old and have faithfully paid your whole life premiums for 35 years. And for the sake of illustration, let’s imagine that your account has built a cash value of $100,000. You’ve never withdrawn or borrowed any of the money, because you view it as an emergency fund that will move with you into old age.

However, you unexpectedly die. While your beneficiaries will receive the death benefit portion of your whole life policy, the insurance company keeps your entire cash account. $100,000 goes right into its coffers.

Life insurance is vital

Buying life insurance is one of the most important things you can do to protect your loved ones in the event of your death. It can also pay for your funeral and even be designated to care for any pets you leave behind. But here’s the thing: It does not have to be expensive, and it does not need to be complex.

Dave Ramsey got it right here. Whole life policies are a truly bad idea.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Excited to register for wedding gifts? Read on to see why you may want to use Costco. 

Many people are used to shopping at Costco for things like groceries and paper products. But if you’ve ever wandered the aisles of your local warehouse club store, you’ve no doubt noticed that Costco stocks a wide range of products, from kitchen gadgets to furniture pieces to towels.

Plus, if you go to Costco.com, the selection there is even broader. At your local Costco, you might find only a couple of furniture items out on the floor, whereas online, you might find hundreds of pieces in stock.

If you’re getting married, you may want to turn to Costco for help in setting up your new home. You can buy everything from small tools to artwork to a new couch through Costco. Or, you could ask your friends and family members to buy those items for you. Doesn’t that sound like an even better option for your personal finances?

A Costco gift registry could be your ticket to getting everything you want

When Bed Bath & Beyond closed its doors earlier this year, many couples wondered where on earth they’d register for wedding gifts in its absence. And there are plenty of options to choose from, including department stores like Macy’s and online hubs like Amazon.

But you should also know that Costco offers couples the option to set up a wedding registry. And you may want to take advantage of it.

First of all, when you create a Costco wedding registry, you can add pretty much any item the warehouse club giant has in stock. Want a new air fryer? Just put it on your list. Need a vacuum cleaner, mop, or trash can? As long as Costco sells it, you can add it.

The benefit of creating a Costco wedding registry is twofold. First, your guests may be more inclined to buy the items you want if they’re able to free up more cash for their savings accounts in the process. Costco is known for its competitive prices. So the items you’re looking for may be more affordable when purchased through Costco than elsewhere.

Also, Costco has a very flexible return policy. With few exceptions, you can bring any item back and get a refund if it doesn’t meet your needs. With some items, like electronics, there’s a time limit for returns. But chances are, you’ll have a lot of leeway with the bulk of your registry items.

So let’s say you’re settling into your new home a month after getting married and you realize you don’t have room for all the wonderful kitchen items you were gifted. You can expect to be able to bring them back to Costco without a hassle.

Don’t leave things to chance with wedding gifts

Some wedding guests want to hand over an actual gift instead of a check or cash. And while those people might have great intentions, leaving them to decide what to get you could result in a scenario where you have no choice but to find room for a hideous crystal bowl you can’t return that probably cost a fortune.

Rather than run that risk, take the time to register for gifts so you’re more likely to get items you actually want. While Costco doesn’t have to be the only store you register at, it certainly pays to sign up for a registry if you’re a fan of the warehouse and want to be able to return unneeded items with relative ease.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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You may be eager to buy a home now that you have a new job. Read on to see why that could be a bad idea. 

Getting a new job is exciting. In many cases, it can mean enjoying higher pay and getting the opportunity to do more interesting, meaningful work.

If you’ve recently gotten a new job, you may be tempted to make your dream of homeownership a reality — especially if you’re earning more money than you did in the past. But here’s why it could pay to sit tight for a while instead.

Is your job as stable as you think?

When you’re new to a job, it can be tricky to get a pulse on operations. Once you’ve been there a few months, you’re apt to have more of a sense of how well your company is doing, and how well you’re doing as a newer member of the team.

This is important, because you don’t want to look for a new home and sign a mortgage only to then lose your job and struggle to keep up with your housing payments. You also don’t want to feel forced to stick out a terrible job because you’re now on the hook for monthly mortgage payments.

Remember, your job might seem great at first. But you never know if three months down the line, you’ll realize that your colleagues are overbearing, your work is boring, and your boss is a micromanager you can’t wait to shake. So before you take on a large expense like a mortgage, settle in.

You might need a longer work history to get a mortgage

Waiting to buy a home after getting a new job is a smart thing to do. But also, it’s something you might have to do.

Mortgage lenders look at several different factors when deciding whether you’re eligible for a home loan. These include your credit score, existing debts, and income.

But for the latter, it’s not just your salary that a mortgage lender will consider. Lenders also look at your income history.

Rocket Mortgage says that lenders typically want to see a two-year history in your current job position. Now, if you’ve worked in the same field for several years and recently made a lateral or upward move, that generally will not be held against you.

But let’s say you graduated college in the spring of 2022 and worked for the same marketing firm until a few weeks ago. If you got a similar role elsewhere in November, you’re not exactly starting over. But you also don’t have two years of industry experience under your belt. That’s something that might cause a mortgage application to get rejected, and another reason not to rush into things.

An important decision to think about carefully

A new job can be a huge adjustment. So can homeownership. That’s yet another reason to sit tight a while after getting a new job. Give yourself an opportunity to get used to your new role before you take on the stress of owning a home.

All told, becoming a homeowner can be life-changing — for better and for worse. Because it’s such a big decision, try not to rush into things. Instead, make sure your job is solid and a good fit, and make certain you have a robust enough work history before moving forward with a home search and mortgage application.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Tesla sells its own auto insurance in a handful of states. Here’s what you need to know about it. 

Teslas are appealing options for environmentally-conscious drivers and those who like to keep up with the latest tech, but they have a big drawback: those insurance premiums. The cars contain a lot of rare components that are costly to replace, and there aren’t a lot of repair shops that know how to do the work.

Some traditional insurance companies charge Tesla owners an arm and a leg for coverage, so the idea of getting a more affordable policy from Tesla itself seems like an easy call. But there’s more than just price to think about. Here’s what drivers should know before purchasing an auto insurance policy from Tesla.

Who can get a Tesla auto insurance policy?

First things first, not everyone is eligible to get a Tesla auto insurance policy. Drivers need to have at least one Tesla vehicle in order to purchase a policy from the company. Those who have non-Tesla vehicles have the option to add these as well.

Drivers will also need to live in one of the following states to get a Tesla policy:

ArizonaCaliforniaColoradoIllinoisMarylandMinnesotaNevadaOhioOregonTexasUtahVirginia

Drivers in other states will have to look elsewhere for now. But it’s possible that Tesla will expand its offerings in the future.

How does Tesla auto insurance work?

Tesla auto insurance offers usage-based auto insurance. It assigns drivers a Safety Score, which determines their premium rate. Several factors influence this Safety Score, including:

Number of Forward Collision Warnings (FCW) when not on AutopilotHow quickly a driver brakesHow sharply a driver turnsHow closely a driver follows other vehiclesHow fast a driver drivesThe time of day a driver uses their vehicleNumber of Forcible Autopilot DisengagementsHow often the driver doesn’t wear their seatbelt

Many insurers these days offer similar programs, but they usually require drivers to voluntarily install a device in their vehicle to track their driving behaviors. Tesla uses features already built into its vehicles to do this.

California drivers should note that usage-based insurance is not available in their state. Tesla will base these drivers’ rates solely on traditional factors, like where the driver lives and what their accident history is.

Is Tesla auto insurance worth it?

Tesla auto insurance hasn’t been around that long and that, along with its limited audience, explains why the company has yet to feature in any large-scale customer satisfaction survey. But there are plenty of customer reviews online and many are not favorable.

Most customers seem to agree that Tesla auto insurance is affordable — or at least it starts out that way. Many have argued that they’ve had their Safety Score unfairly penalized due to issues like a car pulling out in front of them suddenly, forcing them to slam on their brakes, or driving along a narrow street close to parked cars. They’ve found tracking their Safety Score and the premium increases that result from every infraction to be pretty stressful.

Many have also complained about the insurer’s customer service. Some have said that the company was very helpful and attentive when they were attempting to purchase a policy. But when they needed to file a claim, they faced phone hold times of at least 50 minutes and had a lot of issues getting their claims resolved.

This doesn’t mean that every driver experiences this, but as several customers have raised these complaints, it’s not something to brush off either. Those interested in possibly getting a Tesla auto insurance policy should weigh these factors carefully, in addition to the base rate the company offers them, when deciding if it’s the best choice.

As always, it’s a good idea to get quotes from multiple car insurance companies before settling on a provider. Every company evaluates risk differently and offers a different claims experience, and every driver has different priorities. Having a few options to compare can make it easier to identify which company best fits the driver’s unique needs.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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