Why Dave Ramsey Hates Whole Life Insurance
Plus 5 things he gets wrong about cash value policies.
Dave Ramsey is known for his strong opinions about personal finance.
One thing he really dislikes is whole life insurance.
Here are three reasons he tells his listeners to buy term life insurance instead:
Reason #1: Poor investment returns
Dave believes whole life insurance gives you poor investment returns.
The money you put into these policies grows slowly compared to other options.
His solution is simple: buy cheap term life insurance instead.
Then take the money you save and put it in mutual funds.
He thinks this approach will make you more money over time.
Dave often says the returns inside whole life policies are around 2-4% per year.
He argues you can get 10-12% by investing in good mutual funds instead.
Reason #2: Too complicated
Dave likes to keep things simple.
Whole life insurance has many moving parts that can confuse people.
These policies mix insurance with investing.
They have cash values, tax-free loans options, and dividends that may or may not come.
Dave thinks this makes things too complex.
He prefers term life insurance because it's easy to understand:
You pay for coverage. If you die, your family gets money.
That's it.
Reason #3: High fees and commissions
Whole life insurance policies cost more to run than term policies.
Insurance companies charge higher fees. Agents get bigger commissions when they sell them.
Ramsey points out that these extra costs come out of your pocket.
The money goes to the insurance company and the salesperson, not to you.
He believes these high costs make it even harder to get good returns on your money.
5 Things Dave Ramsey gets wrong about whole life insurance
Dave Ramsey is a smart guy. But even smart people can miss things.
When it comes to whole life insurance, Dave makes some mistakes in his thinking.
Let's be clear: whole life insurance isn't right for everyone.
But it's not as bad as Dave makes it sound. Here are five things he gets wrong:
Mistake #1: Calling whole life a “bad investment”
Dave treats whole life as if it’s supposed to beat the stock market. It isn’t.
Whole life is designed to give you guarantees:
Steady growth
Cash you can access later
A death benefit that never expires
For high earners, those guarantees balance the risk of not putting more cash in the markets and retirement accounts.
Whole life isn’t about the highest return. It’s about having a set amount of money set aside you can count on.
Mistake #2: Saying "you can't touch your money"
Dave points to low cash value in the early years as proof whole life is a waste of money.
Here’s what’s really happening:
In the first years, part of your premiums pay for the cost of insurance and building the policy.
That’s why the cash value looks lower at the start.
Remember, this is an insurance policy not a savings account.
But over time, cash value compounds and grows steadily.
Once it builds, you can borrow against it without paying taxes.
For high earners, that creates a pool of money you control without tax consequences.
Mistake #3: Thinking "buy term and invest" always wins
This rule assumes everyone has unlimited room to invest in retirement accounts and doesn’t need guarantees.
High earners know that’s not true.
If you’ve already maxed out your 401(k) and IRA, your extra savings often spill into taxable accounts.
Whole life gives you a place to store wealth that grows tax-advantaged and delivers guaranteed liquidity.
It also helps when your assets are tied up in real estate or a business.
Whole life provides quick, predictable ways to get cash when you or your family need them most.
Mistake #4: Downplaying dividends
Dividends are one of the most misunderstood parts of whole life.
A dividend is a portion of the insurance company’s profits paid back to policyholders.
Top mutual insurance companies have paid dividends for over 100 years, through wars and recessions.
Most policyholders reinvest dividends to buy more coverage, which boosts both cash value and death benefit.
Over decades, this compounding growth can make a huge difference.
For high earners, dividends are a reliable way to grow their money conservatively, outside the market, and without triggering annual tax bills.
Mistake #5: Calling buyers "naive"
Dave says only uninformed people buy whole life insurance. That's just not true.
Rich families, doctors, and business owners buy it all the time.
Why? Because it solves real problems:
It pays estate taxes so families don't have to sell the farm
It creates tax-free money for your kids
It protects your wealth from lawsuits in many states
It provides access to cash for business deals
These folks aren't naive. They're using the right tool for the job.
So, who is whole life insurance for?
A whole life policy is not a fit for everyone.
If you're:
Young and broke: Buy term, invest the difference (Dave's right here)
Middle-class saving for retirement: Term is probably still your best bet
High-income earner maxing out retirement accounts: Whole life might make sense
Wealthy with estate planning needs: Whole life is often essential
Here's why whole life might make sense if you're a high-income earner:
You max out your retirement accounts every year and want to save more.
You’re in a high tax bracket and want more tax-efficient options.
You own illiquid assets like businesses or real estate.
You want predictable growth.
You want to leave a guaranteed inheritance.
You live in a state where cash value has strong legal protection.
Yes, whole life costs more than term insurance. Yes, the returns aren't amazing.
But for the right person with the right goals, it can be useful.
The trick is knowing if you're that person.
If you're young and just starting out, Dave's advice probably makes sense.
But if you're doing well and want tax breaks and guarantees, whole life might be worth a look.