A recent article found on the web gives Suze Orman’s opinion on some popular financial advice.
Suze Orman is a television personality known for giving her two cents on finances. On her eponymous show, she often encourages viewers to pay down debt, save for their future, and spend for fun when it’s financially sound.
In the article, Orman cautions people against permanent insurance (whole life, variable life, universal life), and instead encourages people to choose term insurance. She exclaims, “That is one of the worst investments you will ever make in your life!” She contends, “Insurance should be insurance and investments should be investments… [D]on’t use an insurance policy as an investment.”
She has a point—if you accept her exact words. Don’t use an insurance policy as an investment. The goal of life insurance should be the death benefit it provides; anything else (like accumulating cash value) is a side benefit. Many people struggle to afford permanent insurance, and they eventually cancel their policy.
A shocking statistic:
- 20% of whole-life policies are terminated in the first three years, and 39% within the first 10 years (Society of Actuaries, December 2011).
For dentists and other high earning or high net worth professionals, Suze Orman’s advice may not apply.
So what is the takeaway? Life insurance provides a death benefit. If you can afford life insurance that does some other neat things like accumulating a cash value, consider it! If you’re not sure you can afford permanent insurance, consider term insurance and invest the difference. Most importantly, remember that for every caution someone has against permanent insurance, someone else has a caution against term insurance. Consult several advisers so that you can make an informed decision.