1/16/2006

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"What is the purpose of life insurance?"


Dear Dave,

What are your views about having life insurance on small children?

Winfred via email

Dear Winfred,

I think it’s a total waste of money and a scam. The only exception is that you might pick up a small rider on your term insurance policy - just enough to take care of a child’s funeral expenses if something awful should happen. I did that for years, just a little $15,000 rider, before I decided to self-insure on that issue.

Life insurance policies should never be used for things that this situation represents. Number one, they should never be used as an investment. They’re garbage as investment vehicles. The second reason most people buy life insurance on kids is because they’re scared the child may get really sick later on and become uninsurable. The likelihood of that happening is almost zero, that’s why it’s so inexpensive.

The only people with a real need for life insurance are those who have others depending on them for their livelihood. These folks should carry about 10 times their annual income on a 20-year term life insurance policy.

- Dave

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