I turned on the radio the other day, only to hear Dave Ramsey speaking about how all financial guys and permanent or cash value insurance sales guys are ripping people off. He said the only thing anyone needs is 10 or 20 year level term, and to use the money they would have wasted on a cash value rip off policy, to buy a Roth IRA. I had only heard his show once, and thought he was pretty good, until I heard that.
(I am preparing for the onslaught of negativity from the Ramsey die hards who read this, but still, I believe I have a valid point to make)
Does anyone know if Mr. Ramsey has any securities registration or financial certification, or any legal authority to give financial advice?
The reason I ask is because as an SEC registered rep. I have to follow strict ethics and compliance regulations and would find myself in severe trouble, particularly with regards to my E&O insurance if I were to tell everybody that all financial guys were ripping people off with cash value life insurance, and that the only insurance anyone need is 10 or 20 year level term and an IRA. It simply isn't true.
As a rep I cannot simply spurt off unsubstantiated opinions. I have to ASK my clients what they want, and what their financial objectives are. I answer questions based on their needs, not my own. I would not presume to think that 10 year term insurance was in the best interest of my client unless I had all of the facts in front of me, weighed the pros and cons, and offered alternatives based on my client's needs and objectives, risk tolerance, and time horizon. If my client wants term, they will get term, but it is my job to do what's in the best interest of my clients.
IRA's are a great vehicle, but certainly not the only one. Sure, the cost of permanent insurance is higher than level term, but it also takes money to make money. If the client has a long time horizon and wants to fund his retirement and defer his tax burden, with an added death benefit, then perhaps a VUL would work in that case.
Regardless, it would be irresponsible to suggest Term and an IRA are the only solutions. What happens to the client when his 10 or 20 year term insurance runs out and he is in poor health, and no longer insurable?
I guess he could keep the term in force, paying ridiculously high premiums that increase dramatically every year, which would eventually end up being what a permanent policy would have cost him anyways, but with absolutely no cash value. Maybe his IRA could fund the term until he dies, along with leaving the remaining IRA value, if any to his estate.
Sure, if a client was terminally ill, and only had a few years to live, he could pay the additional term premiums and still leave a death benefit to his family, but what if he was a child who developed an uninsurable illness?
What if the child's parents had an opportunity to buy a small cash value permanent policy when the child was born, to help fund college? What if there was a guaranteed insurability rider added to the policy, so that if the child developed an illness he was insured for life, and was able to still fund college, fund retirement, and leave a death benefit to his own family when he married and had children?
Conversely, what if the child's parents listened to the Dave Ramsey show and heard this nonsense, and decided to take his advice?
Could they go back and sue Dave Ramsey?
The point I am trying to make is that most financial reps are honest, hard working people who offer countless hours of free advice to prospects and earn a commission off the products they sell, whether it's term, permanent or anything else. Our job is to protect our clients, not rip them off.
If Dave Ramsey is not a registered rep, (I don't know if he is or isn't) that may be why he only pushes term. He can't legally offer advice on securities products. Technically, if he doesn't have a life license, he can't offer any legal advice on that either. He can only offer his unregistered, and unlicensed opinion.
