Haris Ashley
Dave Ramsey is known for his practical and straightforward financial advice, especially on insurance. He recommends buying long-term disability insurance to protect oneself from long-term medical problems. While he advises against unnecessary insurance plans, he suggests purchasing critical illness insurance that covers the costs of services not typically covered by health insurance. He also emphasizes the importance of timing and necessity when buying long-term care insurance, recommending individuals consider buying it around the age of 60.
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What You'll Learn
Dave Ramsey's tips on insurance
Dave Ramsey, known for his practical and straightforward financial advice, has several tips for individuals looking to purchase insurance. Here are some of his recommendations and philosophies:
Long-Term Care Insurance (LTCI)
Ramsey advocates for including LTCI as part of a comprehensive financial plan, especially as people are living longer and may require extended care. He emphasizes the importance of timing when purchasing LTCI. He suggests individuals consider buying LTCI around the age of 60 since the likelihood of needing long-term care increases significantly after that age. Buying too early can result in paying premiums for years without needing the benefits, while waiting until around 60 balances cost and risk.
When evaluating LTCI policies, Ramsey recommends considering key elements such as the daily benefit amount, benefit period, and inflation protection. He suggests choosing a daily benefit amount that aligns with the average cost of care in your area and a benefit period of three to five years, which typically covers the average duration of long-term care needs. Inflation protection is critical to ensuring the policy's value over time, as it increases the benefit amount to keep up with rising care costs.
Umbrella Policies
Ramsey suggests considering an umbrella policy, especially if you have a net worth of at least $500,000. An umbrella policy adds extra liability protection on top of your homeowners and auto insurance policies. In today's lawsuit-happy world, it provides defence against situations that can put your wealth in jeopardy. Umbrella policies are affordable, typically costing $200-$300 annually for $1 million in coverage, making them a worthwhile investment.
Health Insurance
While health insurance can be confusing and expensive, Ramsey emphasizes its necessity. He suggests exploring options to make it more affordable, such as using an employer-sponsored plan, raising your deductible, or participating in health share plans. Health share plans, like Christian Healthcare Ministries (a RamseyTrusted partner), tend to be more affordable than traditional health insurance and can provide significant savings.
Insurance Gimmicks to Avoid
Ramsey warns against falling prey to certain insurance gimmicks that are expensive and unnecessary. He advises against buying life insurance for your children or mortgage protection insurance. Instead, focus on adequate term life insurance, which will meet your family's financial needs in the event of your death. He also recommends avoiding accidental death policies, as they provide double coverage that isn't necessary.
Disability Insurance
Ramsey suggests purchasing long-term disability coverage with a benefit period of at least five years, with an age 65 benefit being ideal. This type of insurance protects against long-term medical problems and ensures financial support during extended periods of disability.
In summary, Dave Ramsey's tips on insurance revolve around careful evaluation of policies, timing purchases to balance cost and risk, avoiding unnecessary gimmicks, and seeking independent advice from trusted professionals to find the best coverage within your budget.
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Critical illness insurance cost
Dave Ramsey is known for his practical and straightforward financial advice, and he has shared his views on various types of insurance, including critical illness insurance. While there is no direct mention of critical illness insurance cost in the sources provided, we can infer some information about its affordability from Ramsey's recommendations.
Firstly, Ramsey advises against buying unnecessary insurance plans or riders, such as accidental death or cash value plans, as these can be expensive and provide minimal value. Instead, he suggests purchasing essential coverage, such as long-term disability insurance, which can provide financial protection in the event of a critical illness.
In terms of cost, Ramsey emphasizes the importance of shopping around and comparing policies from different insurers. He points out that costs vary from company to company, and by exploring options, individuals can find the best coverage at the most reasonable price. Ramsey also recommends working with his Endorsed Local Providers (ELPs), who are independent insurance agents committed to finding suitable coverage within an individual's budget.
Regarding specific types of insurance, Ramsey suggests that individuals consider their financial situation and evaluate the necessity of the coverage. For example, he recommends long-term care insurance (LTCI) for individuals around the age of 60, as the risk of needing long-term care increases significantly after that age. Buying LTCI earlier may result in paying premiums for many years without needing the benefits, making it a costly endeavour.
Additionally, Ramsey advises against over-insuring, as it can lead to high premiums without proportional benefits. He encourages individuals to purchase enough coverage to protect against significant financial hardship without overextending financially. This approach ensures that individuals strike a balance between adequate protection and affordability.
While critical illness insurance costs are not explicitly mentioned, Ramsey's advice emphasizes the importance of cost-effectiveness, shopping around, and purchasing insurance based on individual needs and financial situations. By following his recommendations, individuals can make informed decisions about the affordability and value of critical illness insurance within their financial plans.
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Long-term care insurance
Long-term disability insurance is the only plan worth buying, according to Dave Ramsey. Long-term disability insurance covers some of your income if something happens to you (like an illness or injury) and you can’t work. The younger and healthier you are, the easier it is to qualify for a policy. However, as you age, premiums increase, and if your health deteriorates, you may find it hard to qualify for an affordable policy.
Long-term disability insurance is considered anything over two years and up until retirement age (but it can be extended into retirement). Dave recommends getting as much coverage as possible—around 60–70% of your income. It is cheaper to buy long-term disability insurance through your employer.
Short-term disability insurance, on the other hand, is not recommended unless your employer is offering it free of charge. Short-term premiums are usually more expensive than long-term premiums. Instead of buying short-term disability insurance, you can put together your own short-term disability coverage by saving 3–6 months of expenses in an emergency fund.
Dave recommends Zander Insurance to help you get the right amount of disability insurance for your specific situation.
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Insurance gimmicks to avoid
Insurance is an important part of a solid financial plan, but it's easy to get sucked into gimmicks that offer "extra protection". Here are some insurance gimmicks to avoid:
Life Insurance for Children
Products like Gerber life insurance are whole life policies that claim to help you save for college. However, the best way to save for college is with an Education Savings Account (ESA). If you want to ensure that final expenses are covered in the tragic event of losing a child, simply add a rider to your life insurance policy to pay for funeral costs.
Accidental Death Policy
As morbid as it sounds, no matter how you die, your family's financial needs won't change. A term life insurance policy will meet those needs. There's no reason to pay extra for double coverage.
Mortgage Protection Insurance
Many people buy this type of insurance to pay off their mortgage in the event of their death. However, adequate term life insurance will be enough to pay off the mortgage and support your family. Mortgage insurance is more expensive than term life insurance, and the benefit decreases as you pay down the mortgage balance.
Credit Life Insurance
This type of insurance is designed to pay off a specific debt if you die. Again, this is unnecessary if you have adequate term life insurance.
Cancer Insurance
Cancer is a scary word, and it can be financially devastating. However, your medical insurance covers cancer just like any other disease, so buying additional cancer insurance is redundant.
Over-Insuring with Long-Term Care Insurance
Long-term care insurance (LTCI) is important, especially as people live longer and may face extended care needs. However, buying more coverage than necessary can lead to high premiums without proportional benefits. Dave Ramsey recommends purchasing enough coverage to protect against significant financial hardship without overextending financially.
Ignoring Inflation Protection
Failing to include inflation protection in your long-term care insurance can render your policy inadequate as the cost of care increases over time. Ramsey stresses the importance of this feature to maintain the policy's value.
Not Shopping Around
Different insurers offer varying policies and premiums. Ramsey recommends shopping around and comparing policies to find the best coverage at the most reasonable cost.
Remember, insurance is about transferring risk. If you can afford to take on certain risks, you may not need to pay for additional insurance coverage. Work with an independent insurance agent who can help you find the coverage that meets your needs and budget.
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Dave Ramsey Endorsed Local Providers (ELPs)
Dave Ramsey is a well-known personal finance celebrity with a long-running radio show, a video podcast, multiple best-selling books, online tools, educational courses, and a large following. Endorsed Local Provider (ELP) is a designation Ramsey's organisation offers to help financial professionals who have been vetted by his organisation connect to people looking for personal financial services. ELPs are providers of insurance, real estate, and tax services who have been endorsed by Dave Ramsey.
ELPs don't have to do much to qualify for the designation and start receiving referrals other than agreeing to follow his financial planning principles and paying the fees. However, ELPs who don't provide good service and generate lots of complaints may be removed from the program. Ramsey's organisation does not endorse ELPs as investment advisors.
Insurance ELPs are subdivided based on the type of coverage they sell. ELPs may be specialists in property and casualty insurance, health insurance, and long-term care insurance. Ramsey doesn't require ELPs to take any courses or pass any tests except to be in good standing with professional organisations. Financial professionals do have to provide some background information, including the number of years in business, although there is no set requirement for experience. ELP applicants also have to promise to provide good customer service and agree to follow the Ramsey personal finance plan and philosophy.
Dave Ramsey Trusted Providers (ELPs) include Zander Insurance, which has been helping Ramsey fans secure their families' financial futures for over 20 years. They can guide you to make the best decisions for your situation. Another ELP is Churchill Mortgage, which helps Ramsey fans understand everything about mortgages so they can make the best decisions for their families.
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Frequently asked questions
Critical illness insurance pays a lump sum if you are diagnosed with a critical illness such as cancer or suffer a heart attack.
If you have good medical insurance and a fully funded emergency fund, you may not need critical illness insurance. However, Dave Ramsey recommends purchasing long-term disability insurance to protect yourself from long-term medical problems.
Dave Ramsey advises carefully evaluating the terms and features of insurance policies. He recommends purchasing long-term care insurance around the age of 60, when the risk of needing long-term care increases significantly. He also suggests shopping around and comparing policies to find the best coverage at the most reasonable cost.
