Money Management

This Ramsey advice might help clarify whether life insurance is a necessary purchase. 

Who really needs life insurance? This can be a complicated question to answer, especially since it’s important to think about both current and future situations when deciding whether it makes sense to spend hard-earned money from your bank account on this kind of insurance protection.

If you’re on the fence about whether buying life insurance makes sense for you, perhaps some clarity could come from this advice from Dave Ramsey on three reasons why a term life policy could be necessary.

Ramsey has identified three situations when coverage is needed — but is he right about all of them? Here’s what they are, along with some tips to help would-be policyholder’s decide whether Ramsey’s advice applies in their situations.

1. Life insurance is necessary for people who have others relying on their income

Ramsey believes it’s important to have a life insurance policy in place in situations where anyone depends on the policyholder’s income to cover their daily expenses.

This is 100% correct. If a would-be life insurance buyer has a spouse who needs help covering their mortgage or kids who need expensive childcare, then life insurance is a must-buy. Otherwise, an untimely death could throw loved ones into financial turmoil when they’re unable to afford the basic costs of their day-to-day life.

Those without an income also may need life insurance, though. A stay-at-home parent or a caregiver of disabled or aging loved ones may not make money for the work they do, but it would cost a lot to pay someone to do these services in the event of the parent or caregiver’s death.

2. Life insurance is necessary for people with outstanding consumer debt

Ramsey also said life insurance is needed for people who have consumer debt or a mortgage. And that’s true if surviving loved ones would want to keep the house, if the debt is joint debt, or if there could be problems paying it off in the event of an untimely death.

Outside of these situations, debt alone isn’t necessarily reason enough to buy a life insurance policy. Individual debt that’s not jointly owned and that isn’t secured does not necessarily have to be repaid in the event of a death. If someone dies with a credit card bill but no assets, the creditor simply can’t collect. Alternatively, if someone dies with a credit card bill and money or property in their estate, the creditor could collect from the estate’s assets.

So, consider what debts would need to be repaid and what other resources are available to cover them before buying life insurance just to make sure creditors are taken care of.

3. Life insurance is necessary for people who aren’t yet self-insured

Finally, Ramsey said life insurance is needed for anyone who isn’t self-insured. He defines self-insured this way: “You have enough money saved in investments that it grows enough each year to replace your income.”

Most people eventually become self-insured, but this can take a while. Young people who haven’t yet hit this milestone and whose income is needed should heed this Ramsey advice and get covered.

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Anyone thinking about buying insurance coverage should read this. 

How much does life insurance cost? It’s an important question everyone should ask because most people need a term life insurance policy at some point.

Life insurance provides important protection for loved ones in case of an untimely death. If at all possible, paying premiums and buying a policy should be worked into most peoples’ budgets.

Finance expert Dave Ramsey recently took a look at how much different policies cost by age. The data Ramsey discovered shows some trends that insurance buyers should be aware of.

These are the average life insurance costs by age

Ramsey explained that average life insurance policy costs vary by age at the time of purchase, gender, and term length. For example:

A 24-year-old man would pay $39 per month for a 10-year term policy; $49 per month for a 20-year term policy; and $58 for a 25-year term policy. A woman of the same age would pay $25, $35, and $43 for the same policies, respectively.A 54-year-old man would pay $181 per month for a 10-year term policy; $282.50 per month for a 20-year term policy; and $418.50 for a 25-year term policy. A woman of the same age would pay $131, $209, and $292.50 for the same policies, respectively.A 74-year-old man would pay $1,471 per month for a 10-year term policy and would likely be unable to purchase a 20-year or 30-year policy at that age. A woman of the same age would pay $952.50 and would face the same trouble buying longer-term coverage.

These premiums are representative of what the typical man or woman would pay at different ages depending on when they bought their coverage. With most standard term life policies, premiums remain the same for the duration of coverage. For example, the 24-year-old male who bought a policy for $39 per month would still be paying $39 per month nine years later and for the entire duration of the 10-year coverage term.

What do these trends mean for would-be policyholders?

It’s important to understand how these average life insurance costs affect when and how much insurance coverage to buy.

It’s clear from this data that premiums increase substantially as a would-be policyholder ages. This is why it’s so important to get coverage at a younger age when it is actually still affordable to buy insurance. Waiting could mean being priced out of a policy and becoming unable to protect loved ones — especially if a pre-existing condition develops before a policy is purchased.

Longer term policies also cost more. This is worth paying if the policy needs to be in effect for longer, but it’s a good idea to think about when dependents will stop relying on income and services so too much coverage isn’t purchased.

By understanding these trends, life insurance buyers can make more informed choices and get the coverage they need at a price that works for their budget. Acting sooner rather than later can help make that happen, since it can pay to buy before premiums go up due to the aging process.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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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This money management system could work better than Ramsey gives it credit for.  

Finding a system to manage your money can be helpful in accomplishing financial goals.

There are lots of different approaches you could take to do that. But, there’s one common technique many people use which finance expert Dave Ramsey thinks is a bad way to manage your cash.

The big question, though, is whether Ramsey’s right to discount this approach or whether it has some merit.

Ramsey doesn’t like this money management system

The money management system Ramsey spoke out against is using credit cards to “cash flow your spending.” Ramey describes this process as “when you charge normal monthly expenses and then pay off the balance at the end of the month.”

Ramsey acknowledged that you don’t pay interest if you use your credit cards this way to manage your money. But, despite the fact you aren’t incurring any added costs for charging your purchases and then paying off your bill, Ramsey still believes this technique is “one heck of a poor money management system.”

His problem with cash flowing spending using credit cards is that he says you aren’t tracking how you are actually spending your money if you do this. He believes it’s too hard to spot excess expenses by just making a lump sum payment at the end of the month.

“When you pay a lump sum at the end of the month, it’s easy to ignore that daily triple bean burrito habit you’ve developed,” he warned. “When you track everything, your expenses can’t hide from you.”

Ramsey isn’t necessarily right about this

Ramsey’s warning against cash flowing your spending using credit cards is not necessarily worth listening to.

First of all, just because you are charging things on your credit cards doesn’t mean you have no idea where your money is going. In fact, using a card could actually make it easier for you to keep track of your spending because you get a handy list of every single transaction you make. This comes in the form of your card statement, and your online credit card account.

You can easily look at your transactions over the course of the month or at the end of the month, and add up your spending to see where you might be overdoing it. In fact, many apps actually allow you to automatically import this information and categorize your spending for you, so it can be easier and faster to see if you’re sticking to your budget rather than if you’re spending cash.

You also have the option to manually track spending while also using your cards. And, you’ll be earning credit card rewards if you take this money management approach — which can help improve your financial situation if you use those rewards to help pay down your balance or to fund trips or other purchases.

Aside from all that, the reality is you don’t necessarily need to track every dollar. As long as you’re paying off your card balance while still accomplishing other goals (like saving a sufficient amount for retirement and emergencies and big purchases), does it really matter if you’re spending $X amount on dining out versus clothing versus entertainment?

If you are doing what you need with your money, earning credit card rewards, and paying off your card balance in full every month, you’re doing great and you can stick with your money management system without worrying about this particular piece of Ramsey advice.

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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.Christy Bieber 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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Could these signs suggest you have more to learn about investing? 

Investing money is a good thing. If you can put some cash into a brokerage account and buy assets that will help you earn positive returns, you can grow your wealth much more easily than if you must earn every dollar yourself.

When it comes to investing, everyone must start somewhere — which means everyone is a new investor at some point and there’s nothing wrong with that. While it’s actually a good thing to be a new investor, what you don’t want to be is an uninformed investor.

Finance expert Ramit Sethi recently outlined three non-obvious signs of a new investor. If any of these signs apply to you, you may want to do a little bit more research to make sure you’re on the path to making sound investments that will help you end up with a big bank balance.

Here’s what Sethi says are the signs of a new investor

On Twitter, Sethi explained three non-obvious signs that someone may be new to investing and not yet have the knowledge they need to make sound choices.

The first relates to confusion over what an investment actually is. Specifically, Sethi says someone is likely to be a new investor if they say “handbags are actually good investments!”

While Sethi says you should absolutely buy an expensive bag if you want to do that, you shouldn’t assume that costly purses are a good investment just because they happened to cost a lot of money.

“Yes, sometimes handbags can turn out to be great investments, but no savvy investor would say this,” he said. “If you want to buy an expensive bag, great! If it turns out to be a great investment, great! But don’t confuse the two.”

Second, Sethi said another sign of a new investor is not understanding why and how past performance can be predictive of future returns. Specifically, he says you might be new — and less informed than you should be — if you ask “how do you know investment returns will continue at 7%-8%?” Sethi says this is a problematic question because it is “covered in investing 101.”

Finally, Sethi said the last big sign of a novice investor is recommending a particular investment book called The Intelligent Investor. The issue isn’t so much the book itself, but rather the fact that Sethi believes anyone recommending this book to an investor likely hasn’t actually read it at all. And this is a problem because, “You can tell a lot about someone’s level of expertise by the books they recommend.”

Do you need more investing knowledge?

If you recognize yourself in any of these signs Sethi has outlined, you don’t need to be discouraged that you may not know as much as a seasoned investor yet. You just need to make a point to realize what you don’t know.

The good news is, you don’t have to be an expert investor to make money in the market. You can adopt a simple strategy like investing in index funds that track the performance of the market and do pretty well. If you want to become a more sophisticated investor, though, make it a point to start learning more so you can avoid rookie mistakes and make decisions likely to pay off for you in the end.

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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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