April 9, 2013 by Will Ray
Last night, Dave talked about the role of insurance in your financial plan. He used the great example of successful athletic teams. Winning teams not only have a great offense (a plan to make progress with money), but they also have a great defense (a way to prevent serious damage to that plan to succeed with money).
Insurance is that defense. Insurance keeps a major negative financial event from setting us off course, or even bankrupting us.
Dave’s insurance philosophy (which I ascribe to) differs from many in the insurance and financial world. He believes in that self-insurance – not needing insurance in some scenarios – is possible. He feels the best approach is to save for the small expenses and minor emergencies and hold insurance for the really large, potentially life-changing financial events.
In most cases, this approach frees up more cash flow with lower premiums. This allows you to save for those smaller incidents yourself and make further progress in your financial plan, while still being insured against major negative events.
A big example of this approach is with term life insurance vs. whole life, one of the areas where Dave has generated the most hate (from insurance salesmen and whole-life policyholders). I’m not going to get into specific numbers, but if you look at the monthly cost and the death benefit of a whole/universal/variable universal policy, you’ll see that it costs much more for a much smaller benefit.
When you buy term life insurance (effective for a term of 10-20-30 years), it costs a fraction of the other types of life insurance. Dave encourages the use of this extra money to be invested or paid toward debt, making further progress on your financial plan.
One of the most frustrating things is when people cherry-pick the advice in FPU and say, “Well Dave says buy term, and invest the difference – most people don’t invest the difference, so they don’t get the benefit, so that’s bad advice.”
FPU is a comprehensive plan for your money; if you diverge from parts of it, other parts might not make as much sense. But you can’t say that it’s bad advice if people choose to follow one thing or the other. That’s like saying, “Well most people don’t have the discipline to save for an emergency fund, so never using credit cards is bad financial advice.” An emergency fund is a foundational principle of FPU – if you’re not going to do that, much of what Dave suggests won’t make sense.
It doesn’t work that way. This package of Scriptural principles, advice, and information all fit together to help you create a comprehensive system. Some of the principles build on each other. When you start cherry-picking, things make less sense.
We were privileged to have Matthew Clark, Dave’s Insurance Endorsed Local Provider for the Triangle, with us last night. He proved to be a valuable addition to our discussion, answering questions and giving some great advice about the types of coverage that we need.
Here are some resources to help you with your insurance search. Make it happen!
Clark Insurance – Dave Ramsey Insurance ELP for the Triangle
Zander Insurance – Broker for several types of insurance; shops dozens of providers to find the best rates and options. I’ve purchased life, disability, and identity theft protection through them.
North Carolina Department of Insurance – State-specific resource for insurance regulations, information, and assistance.
Question: There are so many terms and options related to insurance – what’s the most confusing thing about insurance for you?