Money Management

Whole life policies are a rip-off, according to Dave Ramsey. 

If you’ve been shopping for life insurance, you’ve probably come across whole life policies. Also known as permanent life insurance, this type of policy lasts your entire life and pays your beneficiary when you die.

In addition to serving as life insurance, whole life also accumulates cash value. A portion of your premiums are invested and earn a guaranteed rate of return. You can get a loan against your policy’s cash value or simply cash it out and cancel the policy. That’s why agents who sell whole life insurance normally present it as a combination between life insurance and an investment.

But take it from finance personality Dave Ramsey — that isn’t a good combination. In fact, he says that life insurance agents “got in the investment business because they figured out it was a way to screw people.” It may sound like an extreme stance, but Ramsey’s advice on whole life insurance is on the money and worth heeding.

Why Dave Ramsey hates whole life insurance

The glaring problem with whole life insurance is the cost. It’s significantly more expensive than the alternative, term life insurance. That’s life insurance you buy for a set time period, most often ranging from 10 to 30 years. For an example of the cost difference, here are quotes from Forbes Advisor for a 30-year old male to purchase $500,000 in life insurance coverage:

Whole life: $360 per month20-year term life: $19 per month30-year term life: $30 per month

As you can see, that’s a massive difference. Whole life does have its advantages. Unlike term life, whole life never runs out, and it builds cash value. But are those benefits worth the much higher price tag? Probably not.

Life insurance agents love to mention the guaranteed rate of return you get with whole life insurance. Ramsey correctly points out that your policy’s cash value actually grows very slowly. The average annual return on a whole life policy is 1.5%, according to Consumer Reports. To be blunt, that’s terrible compared to the stock market, which has an average annual return of 10% over the last 50 years.

Let’s say you’re debating life insurance options at the costs provided above. You could pay $360 per month for whole life or $30 per month for 30 years of term life insurance. You decide to go with term life and invest that $330 difference in the stock market, earning a reasonable 8% annual return.

After 30 years, you’d have $484,490. The cash value on a whole life policy almost certainly wouldn’t be anywhere near that.

And here’s what Ramsey calls one of the worst parts of whole life insurance — there’s no getting both the death benefit and the cash value of your policy. When you die and the insurance company pays the death benefit, it keeps your policy’s cash value. Or, if you cash out your policy, then there’s no death benefit.

Stick to term life insurance

In all likelihood, term life insurance will be a much better financial decision for you. Most people don’t need whole life insurance, because they don’t need life insurance forever.

Life insurance is a must when you have people depending on you financially. If you’re 35 years old with a spouse and a toddler, then a 20- or 30-year term life policy would protect them if tragedy strikes. You could get a policy for $500,000 or $1 million at a reasonable monthly cost and know they’ll have a financial cushion in a worst-case scenario.

But there comes a point when you don’t have people depending on you financially, and when you’ll also have likely saved a large nest egg. For example, if you’re 65 years old with adult children and $1 million in your investment accounts, you probably don’t need life insurance anymore. That’s why an affordable term life policy is usually better than an expensive whole life policy.

Unless you’ve carefully analyzed it and determined that a whole life policy is a better fit, go with a term life policy from one of the best life insurance companies. Invest your money well, and you’ll have an ample nest egg by the time your life insurance policy ends.

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.

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Earning interest *and* getting easy access to your money? Yes, please. 

An emergency fund is like the ultimate financial security blanket. If you’ve got emergency savings, you can tap into that money when you incur an unexpected expense, like a big car repair bill, that you wouldn’t be able to pay for outright from your regular earnings. In more extreme situations, an emergency fund can also help keep you afloat if you’re laid off from your job.

You can use an emergency fund calculator to figure out how much you personally might want to save (as it will depend on your income and your bills), but a common (and conservative) rule of thumb is to save at least three months’ worth of expenses.

If you’ve got that money saved up, you might be wondering where to keep it. It needs to be accessible to you, and ideally, it shouldn’t just sit idle, actively losing value to inflation (as it would if you kept it in your checking account). A high-yield savings account is a good choice, but also consider a money market account (MMA).

Money market accounts are an interesting hybrid of checking and savings accounts. And just like those two accounts, they even come with FDIC insurance, meaning up to $250,000 in one will be returned to you in the event that your bank fails. Here are three reasons why their features make them a great choice to house your precious emergency fund.

1. Higher APY

The ability to earn a higher interest rate on the money kept in one has long been a good reason to consider opening a money market account. The best accounts out there are currently paying 3% APY or more on your money, so if your emergency fund amounts to, say, $10,000, and you earn 3% on it, you’ll make $304.16 on that money in just the first year. If you don’t tap the account, and leave that earned interest alone, even if you add no additional money to it, the following year you’ll earn that 3% on $10,304.16 — coming to $313.41. Ah, the miracle of compound interest.

2. Checks or a debit card (or both)

Since online savings accounts are paying comparable interest to MMAs these days, you may wonder why you should bother with one over a savings account. With a money market account, you’ll get easier access to your money. Many savings accounts don’t make it easy to withdraw cash, and you’ll often need to link one to a checking account so you can use an ATM or debit card to access the money (after you’ve transferred it to that checking account). This is a downside of savings accounts that MMAs don’t share.

MMAs often come with check-writing capabilities or ATM/debit cards, meaning you get access to your cash in just one step, no transferring required. Do note that MMAs are subject to Regulation D (meaning some banks limit how many transactions you can make with them), and so they likely can’t take the place of a checking account as far as withdrawals are concerned.

3. Incentive to keep the account funded

Finally, you should know that some MMAs have a minimum balance requirement, while generally high-yield savings accounts do not. While this could be framed as a downside, I think it’s actually an advantage when it comes to your emergency fund. After all, ideally, this is money you’re not dipping into very often. If you must maintain a minimum balance to earn the highest APY or avoid being charged bank fees, you’ll end up with an incentive to leave money in the account. That said, you’ll still be earning interest on it, and be able to easily withdraw money if you need to, thanks to having checks or a debit card.

If you need a new home for your emergency savings, money market accounts are definitely worth considering for all the reasons above. Keep your financial security blanket in the best account for your needs, and watch it grow while it stays safe.

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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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It’s a move that still paid off financially. 

In August 2020, the average 30-year mortgage rate fell to under 3%. Since I had a higher interest rate than that on my existing mortgage loan, I decided to jump on the opportunity to refinance. And at first, my thinking was that doing so would lower my monthly payments.

But then I decided to refinance in a manner that would raise my monthly payments. And I’m really happy I did.

When a higher mortgage payment isn’t a bad thing

While mortgage rates were way down for 30-year loans at the time I decided to refinance, they were even lower for 15-year loans. So I reached out to some refinance lenders, crunched the numbers, and realized that refinancing to a 15-year mortgage would raise my monthly payments by about $300.

But that’s a good thing. While I’m spending more money each month on my mortgage payments now than I was a few years ago, I’m also on track to pay off the loan much sooner. At the time of my refinance, I had about 22 years left on my mortgage. So this cuts that repayment period by seven years.

Also, I’m saving myself a boatload of interest by virtue of both having a lower interest rate on my home loan and having a shorter time frame for paying it off. That’s money I can use for other purposes, like investing.

Sometimes, it pays to raise your mortgage payment

For many people, the lure of refinancing is rooted in the opportunity to spend less money on housing payments each month. But in some cases, refinancing to a shorter-term loan than what you have can make a lot of sense.

Of course, if you’re going to go this route, you’ll need to make sure you can swing those higher monthly payments. I ran the numbers carefully before committing to spending an extra $300 a month on my mortgage. But because I specifically bought a house that was under my budget in the first place and made a 50% down payment on it, I knew I had the leeway to spend a little more on my home and still not struggle.

Now that said, no sooner did I raise my monthly mortgage payments when my property tax bill rose. That was a little stressful. But it was also something I was anticipating given that property values were rising. And because I accounted for that when crunching my numbers, it didn’t create a problem, thankfully. But if you’re thinking of raising your mortgage payments, make sure to leave yourself wiggle room in case another related expense happens to increase on you at the same time.

Of course, these days, mortgage rates are still pretty high, so it’s not the ideal time to adopt the strategy I pursued in the summer of 2020. But if rates dip back down, it’s a strategy you may want to consider yourself. This especially holds true if paying off your home sooner rather than later is important to you.

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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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If you ever wished DoorDash could pick up your packages for you, that dream is now a reality. 

Most of us can agree that food delivery app services improve our lives. Some days it’s more convenient to get delivery than to pick up an order yourself. But did you know that DoorDash can do more than satisfy your late-night pizza cravings? The company now offers package pickup services for an affordable fee. This new offering could help you save time and reduce your list of errands to run. Find out more about this exciting news.

Introducing Package Pickup

At the beginning of 2023, DoorDash launched a new package pickup service. The brand hopes this service will offer more convenience to busy consumers. After all, with the popularity of online shopping, frequent trips to the post office and other carriers can be time-consuming. Now, DoorDash can run some of your errands for you.

Here’s how it works: A Dasher will pick up your packages for you and deliver them to a USPS, UPS, or FedEx store. Customers can get up to five packages picked up in one order — as long as they’re being delivered to the same carrier.

Here’s how much it costs: This service costs $5 for regular DoorDash users or $3 for DashPass members.

How to use this new service to save time

Are you interested in giving this package pickup service a try? Here’s what you need to do:

Select the Packages hub at the top of the DoorDash app and choose a carrier.Get your packages ready — pack up your items and attach a printed prepaid shipping label or plan to send the shipping QR code directly to your Dasher.Request a package pickup through DoorDash to get paired up with a Dasher.Your Dasher will send a confirmation photo after delivering your package.

Note: Each package must be under 30 pounds and worth less than $500.

This unique service can make your hectic life less stressful — and the best part is it doesn’t cost a lot, so you can continue to honor your personal finance goals. If you’re already using DoorDash for your food delivery needs, you may want to take advantage of this new package pickup service to make your life even easier.

Don’t forget to put your credit card perks to use

Some credit card users can score a free DashPass membership for $0 for a limited time. Many credit cards include delivery app benefits as a card perk. If you have the right card in your wallet, you can try this service for free. DashPass can help you save money on delivery and service fees and make it cheaper to get your packages picked up. Check to see if any of your rewards credit cards offer this perk so you can get more from DoorDash.

Convenience can be well worth the cost

It’s always important to consider your current financial situation before spending money on extra services like this. But sometimes convenience is well worth the additional expense. If you have a jam-packed schedule and want to reduce your trips to the post office, you may want to consider using services like this so you can spend more time doing what you love.

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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.Natasha Gabrielle has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash. The Motley Fool has a disclosure policy.

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Should you consider a personal line of credit? 

When it comes to borrowing money, there are a few different options to choose from. One of the most popular options is to take out a personal loan, but another option you may consider is using a personal line of credit. A personal line of credit gives you access to a certain amount of money you can use as needed, while loans provide you with a lump sum at once. So which one is better? Here are the advantages and disadvantages of each so you can make an informed decision.

Personal lines of credit vs. loans

A personal line of credit (LOC) is similar to a credit card account. You have access to money up to your approved credit limit and whenever you need it. It differs from typical loans in that repayment need not be made in lump sums. Rather, the borrower may make payments whenever they are able, according to their schedule and budget. After paying it down, you can use it again and again.

Advantages of a personal LOC

With a personal line of credit, you can access funds whenever needed and borrow up to an agreed-upon amount. This gives individuals peace of mind, knowing they will have the necessary funding in case of an emergency or unexpected situation. Additionally, this type of loan typically allows users to make payments over time, allowing them to tailor monthly payments around their budget and income. You can create a more manageable payment plan with an LOC. Another advantage is the flexibility offered by a personal line of credit — funds can be used when needed and repaid in small increments.

Disadvantages of a personal LOC

Having a personal LOC can be very useful for managing cash flow and repaying debts. However, it does have some drawbacks. You can easily rack up more debt if you aren’t disciplined. A line of credit is an open-ended form of debt, which could potentially lead to overspending and financial difficulty. This means that if you don’t pay off your balance promptly each month, it can become expensive very quickly.

Lenders often impose strict criteria on eligibility for personal LOCs, so you may not qualify if you have an unsatisfactory credit rating or insufficient income. Lastly, if you have an LOC with a variable interest rate, then the bank can change the interest rate over time. In contrast, the interest is set for the term of a personal loan.

Is a personal LOC right for you?

One great benefit of a line of credit is the fact that you only have to pay interest on the money you actually borrow; so if you are careful about not taking out more than you need, then your payments will be lower than with a loan. A personal line of credit should only be used with caution and intent to pay off the balance quickly.

If you are a disciplined spender, then an LOC can provide you with more flexibility and peace of mind. For example, a personal line of credit may offer distinct advantages over traditional loans when dealing with recurring expenses or emergency situations requiring quick access to funds.

Ultimately when deciding between taking out a loan or using a personal line of credit for your financial needs, it really depends on what exactly those needs are and how quickly you need access to funds. Personal lines of credit are great for people looking for convenience and flexibility, since they offer access to funds up their approved limit. However, loans may be better suited for larger purchases since they offer fixed repayment terms and predictable monthly payments over time. Whatever borrowing route you decide to pursue, remember that researching all available options thoroughly is the smart move.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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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