PODCAST EPISODE 294 – Dave Ramsey Doesn’t Understand Life Insurance (Part 2)

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0:12

Welcome back to the sound financial group podcast. I am Paul Adams, founder of sound financial group. I am not joined by Mr. Shepherd today, because we’re on part two of our Dave Ramsey. Not understanding whole life insurance, one of the most basic building blocks of a person’s financial affairs, the life insurance, and not understanding some of the most basic components of this tool that people use every day to take better care of their future finances. So we are going to jump right in, but I need your help sound financial family, I need all of you to get in here, hit these comments share this episode. Dave Ramsey is way worse. And the second half of the same video and then the first half. And what I mean by that is being dead wrong. So we’re going to jump right in. I hope you guys enjoy this. Buckle up, I may get a little heated, I tried to get a lot of my thoughts out ahead of time. And we will see if I get triggered. Here we go. Dave, let us have it.

1:15

Well, he’s gonna have that anyway.

1:16

No, instead of putting it into this rip off thing and making 4% on your money, and when he dies, he loses his cash value.

1:25

Let’s pause right there for a moment. This rip off thing that gets you 4%. Again, if it is a rip off, then is the bank leaving cash in the bank at half a percent for the last 20 years until interest rates recently went up. Dave, was that all rip off? Because it was a low rate of return?

1:42

Are you if you put this in a good mutual fund, you’d have 100x 10x.

1:48

Okay, let’s jump into that really quick. You might have 100x, you might have 10x, you might have like the difference between 10x and 100x. Dave is huge. Let’s get back

2:01

to Dave here. amount of money. And that’s your infinite freaking bank.

2:06

But we’re only putting in 70,000. And he’s gonna be

2:10

that’s how the present value formula works. In finance? Yeah. Look, let me just Okay, take the same. I mean, I understood intellectually, intellectually deal with this for a second, okay.

2:23

We’re gonna intellectually deal with it. Like, it hasn’t been emotional as you’ve been condescending this man the entire time, Dave,

2:30

take the same amount of money when you get off the air and put it in a financial calculator at 11%. And pretend it was invested in mutual funds, and see what it is when he’s 88 years old.

2:43

It’ll be more a whole lot more. But and he’ll have that too. But this to me, is a way to

2:51

know he doesn’t have

2:54

to let’s take a quick look at what Dave’s there said there about how much money you would have. Let’s follow Mr. Ramsey’s the basic premise here. So on the left hand side, what I’ve done to mimic this person’s investment that they’re talking about is $5,373 a year at 11% for 13 years, then we’re not investing anymore, we’re just letting a compound now add 11% no taxes do Dave, we’re just gonna get 11% in our good growth mutual fund and we’re never going to be taxed on it. That would grow uninterrupted. That’s 11%, smoothen up to the right. So in Dave’s universe, there is no volatility. There never is a down year, there was never a down year while we were accumulating, nor was there ever a down year during the entire accumulation. By the way, the only way conceivable 11% would happen by the way, never tax free. But the only way it would possibly happen if you were 100% equities portfolio like all all stocks, this the only chance and what he’s comparing it to as if it’s outstripping it is an account that is looked at by the Financial Planning Board as safe as CDs at a bank. So he’s saying it’s going to get to 92 million. That is a lie. Now, I’m going to call Dave out on a few things here where he is intentionally giving somebody a miss truth. If I as somebody has a great deal of understanding about finance, intentionally leave somebody under an impression of inaccurate information, especially inaccurate to the tune of nearly $100 million. I will be liable for that. Dave is not liable because he’s not licensed. He’s not regulated by any of this. He is absorbed by the disclosure at the end of his show. What might really more likely happens let’s say an 8% rate of return over time in an academically allocated globally diversified portfolio and then assuming that that account just had to pay its own taxes during all of cumulate One, and it’s held by somebody who has a relatively high income and therefore high income tax and higher capital gains tax, that would grow the entire time to 6.2 million. That is a good chunk of money, there is no question. But you’re blowing up what this guy did for his son with an incredibly safe investment by instead saying he should push the throttle all the way on to absolutely the most aggressive possible outcome, not include taxes, and then compare that to the safe tool and say, see how much better it is. That is misleading the public Dave, that is you misleading your own listener. You guys ready, we’re gonna go back to here.

5:43

Borrow again,

5:44

that’s what you that’s called opportunity cost on your money, you put it into something that’s gonna make him at 88 have two and a half million, and he should have had 25 million.

5:54

Today, guys. I mean, what a great example, again, he is literally just making up numbers might have 10 times as much might have 100 times as much. It is a commitment to entertain the people that are listening with zero commitment whatsoever of giving a proper appropriate financial advice to the person calling into a show or creating any level of real understanding, as all he does this talks down to and belittles the guy who called in

6:22

because you screwed up and put it in the wrong thing.

6:24

Well, we when we screw it up and put it in real estate too, and he’s gonna get real estate, but

6:29

then put the money in real estate, but don’t put it in this crap.

6:33

Like, you can get a sense of how totally either or Dave Ramsey is like you either do this or you do that. And he definitely don’t do anything that he doesn’t recommend, or you’re gonna get absolutely talked down to, on his show, so that he doesn’t like many people don’t want to have an an actual discussion of disagreements, especially around money. Just having a conversation of this is what the outcomes are going to be and the interest rate or the tax rates and showing somebody instead just saying flippantly, it’s 10 to 100 times more or 25 million, he has no idea what any of the outcomes would be. And no commitment to even giving accurate information to his own listeners.

7:19

I have to respectfully disagree,

7:21

on what basis he’s getting more money. If you put it somewhere else.

7:26

I just gotta say the guy who called in if anybody knows Jim, in Nashville, get this guy is a saint, I would have a difficult time letting somebody talk to me this way, and then respectfully disagree with them.

7:42

But he’s able to borrow against this.

7:45

If you’ve got 25 million in mutual funds, you can borrow against it.

7:51

Now once you guys remember that, he just said, if you have $25 million in mutual funds, you can borrow against it. And he just said that will be better than doing the life insurance now is very different. But it doesn’t mean that it always works and that volatility component is a big deal. And again, none of us over here sound financial group or on this podcast are either or real estate, great investments in the market, great whole life insurance great, but they should all be examined and coordinated together for the maximum outcome, as opposed to it’s just a terrible tool and you’re an idiot for even concerned considering it.

8:31

But he’s gonna have to wait until he’s you know, to get to get that amount of money.

8:36

Okay, so you’re gonna teach him that the way he becomes wealthy is borrowing against money that his father invested for him. That’s how he builds wealth.

8:45

Now, just a second ago, he told this caller that all of these investments in this mutual fund that you’re creating for your son that can be as infinite bank. But now rather than doing that he is Pooh poohing the idea of inner family financing, which we’ve seen in our business, create tremendous outcomes for people, multi generational legacies. Because somebody had the opportunity to borrow from a parent to start that company that then launched them to a level of success they might not have ever seen otherwise yeah Dave That’s a terrible idea.

9:19

No one rich ever

9:21

I mean banks use this product to no they do

9:25

not you

9:26

okay guys, in just a moment. I want you guys to see how adamant Dave Ramsey is about how banks absolutely don’t use whole life insurance.

9:37

When watching too much tick tock banks do not use whole life. Not ever.

9:43

Banks do not use whole life not ever. That’s what he just said banks do not use whole life not ever. Let’s hear it again.

9:54

Banks use this product to

9:56

know do not even watch it too much. Tick tock banks do not use whole life. Not ever. Thanks. I know where no bank so I would respectfully disagree. No, they don’t. They do not use whole life Life Insurance what bank? Well,

10:13

we I mean, we we Google it and see what typically banks do with their money. But I believe typically

10:19

banks never put money. Let me tell you what banks do they put it in bonds, they’re required to, they wouldn’t be allowed by federal regulations to put it in life. It’s not a place to invest money, because

10:31

now by the way, I want you guys to notice that guy just went, huh. Like, oh, maybe I wasn’t told the truth. Maybe banks don’t own a whole life insurance. And that was the premise I built this entire decision on. Now. Here’s Dave Ramsey, telling me it’s just not true. Can you guys see this part of my hair, this is terrible. I gotta fix that. For those of you listening on the podcast, I have some seriously errant hairs underneath my headphones, but it’s fixed now. So Dave, is dead. Frickin wrong on this, he is lying to everybody out there. Now, whether it is a sin of comission, or a sin of omission, I care not. I care that this guy is absolutely damaging everybody listening to his show investment. I pounded my desk so hard that the video started again. But let me show you how unbelievably full of SNOC this guy is. So let’s start with schedule RC F. This is a tool that is used by the FDIC to be able to Oh, let’s see life insurance. And it gives exactly how to account for it on a bank’s balance sheet. But there’s more. We also have this post from the FDIC bank owned life insurance inter agency statement on the purchase and risk management of life insurance owned by banks. What else do we have? This is another one of those PDFs we can get that just walks through exactly how to record it on a bank’s balance sheet from the FDIC. We also have this whole section from the Office of the Comptroller of the Currency in the way that banks own life insurance. We have bank owned life insurance, the interagency statement on the purchase and risk management of life insurance. What is bank owned life insurance and how does it work from Investopedia. There is an acronym for it, Dave. It’s called Boley bank owned life insurance. We also have let’s see, total banks with over 50 plus billion have 45 Total banks that are in that category. 36 of them have boli that’s 80% is you look down this Oh, how is that in assets? Let’s see $439 billion, of which 3.7 billion is the cash surrender value of their whole life insurance. We can go right down the list here, Dave, this is going to show that many many, many, many banks have a truckload of money in whole life insurance, and I found another FDIC component. Not only are they allowed to do it, but it’s considered tier one capital on their balance sheet. I should probably zoom in and let you guys have a shot at seeing that better. But it’s tier one capital. It means it counts as the highest reservable safest capital A bank can have. They can even go above 25% As long as they have a bank committee that’s done the research of not taking too much risk going above 25%. But Dave, you are wrong. You are telling the American public a total it’s just not true. It’s not true. And you’re making this man Jim questioned the decision of what he did for his son based upon you telling him something that is completely untrue. All right. And to get that off my chest I think I’m feeling better. Now let’s finish out

14:01

the rate of return. And when you die, you lose your cash value.

14:06

I know we discussed that in part one. Also, totally not true. It is a strawman. It’s because the cash value matures into death benefit there you die. So you could say you get way more than your cash value death you get the death benefit would be another way to say it but instead Dave Ramsey rather than having a decent discussion would rather live inside this straw man fallacy.

14:28

But but you also you You’re making it sound like I’m losing money on the whole you are you making it sound like when not me but my son when he dies? Yeah, that he’s only going to be able to get his

14:46

he’s gonna have $22 million less than he should have. If you had put this in a good investment.

14:53

You had mentioned that the cash value guys and you only get the face value. That’s not true.

14:59

That is true. That’s not I just forgot just covered that with you for the last 10 minutes. Paid up additions are the only way that

15:06

Jim from Tennessee if you’re listening, you are correct. Dave Ramsey’s not correct. Dave Ramsey is pulling a fallacy on you and his strawman argument against whole life insurance.

15:16

cash value increases, unless you’re using a Universal Life program b Are you paying extra to get the extra insurance which is another form of paid up additions?

15:26

That isn’t? Which incidentally, option B of a universal life policy is nothing like paid up additions of a whole life policy because a universal life policy you look back to some of our old episodes where we talked about the different types of life insurance, it is overfunded term insurance, we’re taking term insurance, internal the contract term insurance costs, and then you’re creating a little side fund inside the life insurance. It is the definition of Term insurance, not paid up additions, that just speaks to how little he understands, but how confidently he’s willing to express his non truths to his listeners

16:02

out of my pocket, so I put some money

16:04

coming out of your pocket. It’s coming out of the policy’s pocket, I know the policy, you put the money in dude, and then it paid you are a dividend and you chose to buy more of this crap with a dividend. And you’re calling that I kept my cash value. Now, you

16:20

know, Dave Ramsey would never use this argument on your mutual fund growth and compounding, right. He’s never going to save you that. You keep putting in more money because I’m compounding at 11% forever. Well, then, isn’t that compounding putting in more money? Hey, Dave, how about all the taxes I had to pay out of another pocket? How about the first time it got to 10 million. And then I got an 11% rate of return. And I had a $1.1 million gain. And I had to pay $300,000 in taxes. Where did I get that money from Dave? Like you can see, this is that fallacy. My son who we homeschool, but has a book in rational arguments and rhetoric in identifying fallacies. He’s 13. And can watch this and understand that Dave is just setting up fallacy after fallacy after fallacy rather than. And by the way, there can be good reasons to not own whole life insurance. Okay, totally good reasons to not own it in certain people’s situations. And we oftentimes will have situations where it’s not recommended because of that, or people have it and we recommend that they modify it because maybe it wasn’t appropriate for them. There are legitimate reasons why they could be backed up by math and scholarship, and don’t require that you talk down to somebody, Dave Ramsey is scaring people away from getting competent financial help. Because he craps on them every time they reach into his show, try to ask a question or try to disagree insurance?

17:45

Well, I know that I put in 70,000. And at a certain age, it’s going to be at age, when he’s 15 years old, that’s going to be paid up,

17:55

Jim, and you understand what I understand if you’re alive, that there’s a probability of your death. And so 100% of the time that a life insurance program is paid up, it means that you prepaid it, that’s all

18:08

now are you guys going to be shocked to find out that Dave Ramsey is also totally wrong here. Because a paid up policy can also be a policy you’ve just kept for years, you had no intention of stopping paying on and you decided at that time, I want to pay it up, you didn’t overpay, you just pay the appropriate amount for the amount of coverage you now get to keep without any pain, paying any more future premiums.

18:36

What means because as long as there’s a probability of death, there’s a cost. So the insurance company has always got a cost as long as you’re alive. So there is no such thing as a paid up. That’s, that’s an industry term that gets suckers like you. That’s what it is.

18:50

Now, I think the way that he ends, that is such a great thing. They just ended with suckers like you. Like why, Dave? Why if it’s not about just getting ratings, it’s not about people who just agree with you and love this you crap on somebody? Why? I think it’s because you do this kind of thing. Because you know, if you went toe to toe with somebody that knew their math, if you guys had actual future value calculators and you did a side by side comparison, here’s the thing. I’m not saying maybe for this kid that this guy is talking about, maybe he would have been better off in your strategy. But you know what you’re not doing? You’re not putting it up to the math, the test of math, you’re not putting up to the test of scholarship. You don’t even check your answers. You present falsehoods with a level of confidence I have never seen from another human being and for that is a reason why, at least for the people in the sound financial family that listen to this podcast, they will know they will know how inaccurate you are. They will know how to think about this garbage when they see it on the internet. They will know that you You are perfectly willing to be totally, totally wrong. And yet present your wrong answer with a level of confidence that would never let anybody know that you could do that. And this goes for your co host, too, because she could be, I don’t know her name, but she could have been googling this while you were spouting falsehoods, put her hand on your shoulder and said, Hey, actually they do. This is how that works. And he’s been this has been brought up to him before, it’s not as if he hasn’t had the opportunity to fix it. There is no fixing, because it disagrees with the decision he made 20 years ago that it’s bad idea to own whole life insurance. Just ask him about any idea that if asked him to justify why he says 12% rate of return, you guys can look that up on some of our old episodes. It is also totally inaccurate, untrue and unattainable by the regular person. So with that, here’s what I want to ask all of you do like this video, but we got to get this out. People need to know how inaccurate one of the largest financial voices in this country is. Second watch for these clips and like them and share them. We’ll make them bite sized and awesome from this episode. You’ll see those coming out in the next couple of weeks. And last but not least comment below. Which one of the things you said here today, either by me or by Dave got the greatest amount of attention for you. And then if you see some other comments you’d like like those two, it really makes a difference. And especially for something like this, we got to get in front of as many people as possible. So that it’s not just the sound financial family. It’s getting the chance to make better financial decisions and see through these falsehoods. We need to get it out to everybody else. And we hope that this episode has been a contribution to you being able to design and build a good life

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